In 11th century Sichuan, money was made of iron. The coins were cheap, heavy, and so low in value that a large purchase could require wagons and pack mules. Merchants in Chengdu found a way around the weight. They took deposits of iron coins and handed back paper promissory notes called jiaozi, which could be traded in place of the metal. This episode traces how those private receipts, at first issued in no standard denominations, became the world’s first recognized paper currency.

After the 16 largest merchant companies banded together to standardize the notes, a string of bankruptcies shook confidence, and the Song government stepped in. It set up an official issuing office in 1023 and released standard notes the next year, stamped with multiple seals to deter counterfeiters. Then came the temptation every later government would face. Printing paper was far easier than mining iron, the notes soon dwarfed the coins behind them, and the first paper money became the first lesson in runaway inflation.

• At one point about 700,000 iron coins backed 3.78 million min in paper notes, a figure that later rose to 4.14 million.
• In 1105 Emperor Huizong tried to cure inflation by renaming the currency, and the rebrand failed entirely.
• A note supposedly worth a thousand coins eventually bought only 100 to 400, and officials sold silver, gold, government titles, and tax exemption certificates for monks and nuns to soak up the excess paper.
• The government gave notes an expiration date of two years, raised to three in 1199, after which they had to be redeemed or swapped for new ones.
• The jiaozi was finally replaced by the huizi in 1256, but paper money itself endured, and even soldiers came to be paid in it.