How it began
Jiaozi appeared in Chengdu, in Sichuan, in the early Northern Song dynasty. Shops known as jiaozi households kept cash for merchants who found it inconvenient to carry large sums, and gave them a note on paper-mulberry paper filled in with the amount deposited. From 1004 to 1007 the prefect Zhang Yong reorganized these shops and left the business to 16 wealthy merchant families. The shops later began printing notes in uniform denominations and formats and issuing them as a medium of circulation.
Before it existed
The Song state did not have a unified coinage: some regions used copper coins and others iron. Sichuan used iron coins, which had low value and were heavy, one copper coin being worth ten iron coins. That made large payments extremely inconvenient. Historians cited in the Baidu encyclopedia trace the idea of a paper certificate to the feiqian, or flying money, of the Tang dynasty, an exchange certificate used by merchants who could not easily carry copper coins while traveling.
How it works
A jiaozi began as a deposit receipt that could be redeemed for coin on demand. Once the shops found that lending out part of the deposits did not endanger redemption, the notes worked as credit money. Private notes carried elaborate designs, hidden marks, black and red printing and handwritten signatures to deter counterfeiting. The official notes ran for a term of two to three years, after which they had to be exchanged for a new issue, and each issue was backed by a reserve of iron coins.
Who pushed back
The system was undone by over-issue. To meet military needs in Shaanxi, extra issues several times the regular amount were printed. In 1107 the government renamed the notes qianyin, which had no reserve, were not redeemable and were issued without restraint, so their value fell sharply. Circulation of jiaozi had in any case been largely confined to Sichuan.
What changed first
When some merchant issuers ran into difficulty and could not honor their notes, disputes and lawsuits followed. On January 12, 1024 the Northern Song government established the Yizhou Jiaozi Office in Chengdu and took over the issue. The first official issue was about 1,256,000 strings of cash, backed by a reserve of 360,000 strings in iron coin, a reserve ratio of 28 percent. Private printing was prohibited, and counterfeiting was later treated like forging official documents.
What lasted
Numismatists regard jiaozi as the first paper money in history. Paper notes continued under later Chinese dynasties, and Marco Polo's report of the paper currency of the Yuan dynasty made Europeans aware of it. No physical jiaozi note has been discovered to date.
