Rory Brown on the History of Money: From Lydian Coins to Chinese Bank Notes

It’s well known that the world’s first coins were developed during the Lydian Empire. According to Rory Brown, Lydian staters are widely accepted today as being the first true coin in the entire world.

At the same time that the Lydian Empire was inventing what became known as modern coinage, though, paper money was being created by a far-away culture. Paper money was founded in China, which was 4,000 miles from where the Lydian Empire was located.

Below is a short history of how this all happened.

Block Printing

Paper money was actually derived from a Chinese art known as block printing. During the Tang dynasty of the ninth century, officials in the government used paper certificates that were block-printed to pay their local merchants.

The certificates had specific amounts of currency actually written right on them. The Tang dynasty did this because it was difficult for people to transport a large amount of coins during the long trips that many Chinese merchants traversed.

These certificates were ultimately dubbed “flying cash” since they had a propensity to blow in the wind. The merchants with the certificates could exchange them for hard currency whenever they wanted to while in the capital.

They became a currency of their own, in fact, because they could be transferred. The face value of the paper money was guaranteed by the coins that they were exchanged for.

Because it wasn’t ever intended to be a currency, though, there wasn’t a large enough amount in supply to support its widespread use.

Paper Currency … 200 Years Later

It wasn’t for another 200 years that the world’s first true paper currency was born; we have the Chinese to thank for that as well.

A group of wealthy merchants in China started to utilize banks to print paper certificates for them. They were able to be transferred to hard currency at the location where it was originally issued — much like flying cash.

Because these certificates were widely distributed, they actually ended up generating interest from the population in paper currency.

In 1023, the government of China said that all private banknotes had to be taken out of banks. They said that only bills that the government printed would serve as legal tender.

Rory Brown explains that the Chinese government then essentially created modern paper money through two subsequent decisions.

First, every paper bill that was printed had to be backed up by hard currency. This is similar to how the world had the gold standard that was used to back all paper currency.

Second, the government made both coins and paper currency directly transferrable to the public. This made paper bills as valuable as the silver and gold coins that they could ultimately be exchanged for.

As a result of these moves, paper money came to be in circulation. So, at the same time, as Rory Brown explains, the Lydian Empire was creating modern coins, and the Chinese Empire was creating paper money.

About Rory Brown

Rory Brown is a Managing Partner at Nicklaus Brown & Company. He is the Executive Chair of Goods and Services and Blueriver. Providing excellence in the industry for over two decades, Mr. Brown was chosen as the Financial Services Entrepreneur of the Year by Ernst & Young, and he has founded several companies in the Inc. 500. Rory Brown researches the Lydian Kingdom and ancient currencies in his spare time.