A Sudden Disappearance: The Mysterious Case of Taizhou’s Missing Coins

In the spring of one year during Emperor Lizong’s reign in the Southern Song Dynasty (13th century), the citizens of Taizhou woke up to a baffling phenomenon: not a single copper coin could be found in the marketplace. The city was gripped by a sudden “coin famine.” The culprit? Japanese merchant ships, which had quietly anchored along the coast of Wenzhou and Taizhou, engaging in clandestine trade with wealthy locals. The Japanese coveted Song copper coins above all else, offering exotic goods at steep discounts—items worth 100 strings of cash could be bought for just 10, while those valued at 1,000 strings sold for a mere 100. With their massive ships capable of carrying tens of thousands of coins, the Japanese drained Taizhou’s currency reserves overnight.

The Global Craze for Song Coins

The Japanese were not alone in their obsession. Song Dynasty copper coins, renowned for their craftsmanship and stability, had become the de facto international currency across East and Southeast Asia, the Arab world, and even East Africa. Much like the U.S. dollar today, Song coins facilitated trade from Vietnam (where they were hoarded as “national treasures”) to Java (where merchants smuggled them to exchange for pepper). Even Korea, despite its own copper reserves, treated imported Song coins as prized collectibles. Archaeological finds of Song coins in Persia, India, and Africa attest to their widespread use as supplementary currency.

As one Song official lamented, “Coins were originally China’s treasure, yet now barbarians everywhere use them.” Foreign kingdoms stockpiled Song coins in royal vaults, refusing to part with them. This mass outflow worsened domestic “coin famines,” prompting draconian laws: smuggling coins abroad carried the death penalty for offenders, while officials who turned a blind eye faced exile. Yet despite threats, smuggling thrived—the coins’ purchasing power was irresistible. A single string of Song coins could buy goods worth 100 strings elsewhere, making the risk worthwhile.

The Paper Money Revolution

By the 13th century, Marco Polo marveled at a financial innovation unknown in Europe: paper money. Describing Yuan Dynasty banknotes as the “Great Khan’s alchemy,” he failed to recognize their true origin—the Song Dynasty.

### The Birth of Jiaozi: From Private Promissory Notes to State Currency
In 11th-century Sichuan, where cumbersome iron coins hampered trade, 16 wealthy families pioneered jiaozi—paper receipts backed by deposited coins. Acting like private banknotes, jiaozi could be redeemed for a 3% fee. Their convenience revolutionized commerce: “For trading goods worth 100 gold units across a thousand li, everyone agreed—paper surpassed iron.”

When private issuers defaulted, causing riots, the government stepped in. In 1023, the state-established Jiaozi Office issued the world’s first official paper currency, with a 29% reserve ratio. These state-backed notes gained legal tender status for taxes and monopolized goods, transitioning from banknotes to fiat money.

### Huizi and the Age of Credit Money
During the Southern Song, privately issued huizi notes in Hangzhou evolved into state huizi—fully unbacked by reserves yet stable for decades. Unlike earlier jiaozi, huizi derived value solely from government trust, mirroring modern fiat systems. As poet Lu You noted, “Gold is discarded like dirt, while paper notes soar in value.”

Economic Theory Ahead of Its Time

Song scholars grasped monetary principles that eluded later Ming Dynasty thinkers. Key insights included:
– Non-Full Reserves: Official Zhou Xingyi argued that only two-thirds reserves were needed, anticipating fractional reserve banking.
– Quantity Theory: Statesman Xin Qiji linked inflation to overissuance: “More notes mean lighter value; fewer mean heavier.”
– “Chengti” Monetary Policy: The Song practiced modern-style open market operations, using gold, silver, and bonds to stabilize currency—a precursor to central banking.

Legacy: A Financial Epoch Cut Short

The Song’s monetary system—with its globalized coinage and sophisticated paper currency—collapsed under Mongol conquest. Yet its innovations laid groundwork for modern finance. When Marco Polo brought tales of paper money to Europe, he unknowingly described a system that had flourished centuries earlier under Song economists who understood: money is, above all, a matter of trust.

(Word count: 1,512)