Paper money NINTH CENTURY AD The Chinese invented paper money at the end of the eighth or beginning of the ninth century AD. Its original name was 'flying money' because it was so light and could blow out of one's hand. The first paper money was, strictly speaking, a draft rather than real money. A merchant could deposit his cash in the capital, receiving a paper certificate which he could then exchange for cash in the provinces. This private merchant enterprise was quickly taken over by the government in 812. The technique was then used for the forwarding of local taxes and revenues to the capital. Paper 'exchange certificates' were also in use. These were issued by government officials in the capital and were redeemable elsewhere in commodities such as salt and tea.
When the Mongols came to power in China, they issued a quaint form of paper money called 'silk notes'. The deposits behind this currency were not precious metals but bundles of silk yarn. All older money had to be cashed in and exchanged for silk notes, and the Mongols spread this unified currency all over the Empire and even beyond. By 1294, Chinese silk notes were being used as money as far afield as Persia. In 1965, two specimens of 'silk notes' were found by archeologists.
When Marco Polo visited China, he was so impressed by paper money that he wrote a whole chapter about it, describing everything about its manufacture and circulation. He described the manner in which it was issued:
All these pieces of paper are issued with as much solemnity and authority as if they were of pure gold or silver; and on every piece a variety of officials, whose duty it is, have to write their names, and to put their seals. And when all is duly prepared, the chief officer deputed by the Khan smears the Seal entrusted to him with vermilion, and impresses it on the paper, so that the form of the Seal remains printed upon it in red; the Money is then authentic. Anyone forging it would be punished with death.