IELTS Academic Reading Practice Test 16: Passage 1

For most of human history, money has meant something with a value of its own: shells, grain, cattle or, above all, metal. In China, the most common form of money for more than two thousand years was the bronze coin, round with a square hole in the middle so that it could be threaded onto a cord. Coins of this kind were convenient for everyday purchases, but each one was worth very little, and a merchant buying goods in bulk might need to hand over thousands of them. A standard string of coins, nominally a thousand in number, could weigh several kilograms, and transporting large sums from one part of the country to another was slow, expensive and dangerous.

The first step towards paper money was taken under the Tang dynasty, early in the ninth century. Tea merchants and other traders who sold goods in the capital, Chang'an, were reluctant to carry their earnings home over long distances. Instead, they could deposit their coins with the offices that their own provincial governments maintained in the capital, and receive a certificate in return. On presenting this certificate back in their home province, they could collect the same sum. Because the money seemed to travel without being carried, these certificates became known as 'flying money'. They were not, however, true currency: each was issued to a particular person for a particular sum, and they were not passed from hand to hand to pay for goods.

True paper money appeared about two centuries later, under the Song dynasty, in the province of Sichuan in the south-west. Because copper was scarce there, the region used coins made of iron, which were even heavier than bronze ones and worth even less, so that a modest purchase could require a burdensome load of metal. Shops in the city of Chengdu began to accept deposits of iron coins and to issue paper receipts, known as jiaozi, which could be exchanged for coins on demand. Because the receipts were so much easier to carry than the coins themselves, people began to accept them in trade, and they started to circulate as money in their own right. Eventually a group of sixteen wealthy merchant families was given the sole right to issue them.

The system depended entirely on trust, and trust proved fragile. Some issuers put out more notes than they could redeem, and when holders found that their notes could not be exchanged for coins, disputes and lawsuits followed. In 1023 the Song government took control, setting up an official bureau in Chengdu, and the following year it issued the first paper money in the world to be produced by a state. Each issue of these government notes remained valid only for a fixed period, usually three years, after which the notes had to be exchanged for new ones, and the total quantity in circulation was at first strictly limited.

Producing notes that could not easily be copied was a constant challenge. The notes were printed from carved woodblocks and, later, from metal plates, and they combined elaborate designs with official seals and signatures. Some were printed in several colours, and in later centuries special paper made from the bark of the mulberry tree was used. Many notes also carried a stern warning. One issued in the late fourteenth century, for example, declared that counterfeiters would be beheaded and promised a reward to anyone who informed on them.

Paper money reached its height under the Mongol rulers of the Yuan dynasty. Kublai Khan made paper notes the main currency of his empire, and the Venetian traveller Marco Polo, who claimed to have spent many years in China in the late thirteenth century, described with amazement how the emperor's notes were accepted everywhere as payment, even though they were made of nothing but paper. Many European readers found his account hard to believe. In Europe, coins of gold and silver remained the only respectable form of money, and the first European banknotes were not issued until 1661, by a bank in Stockholm.

Yet the Chinese experience also revealed the danger inherent in paper money. Because notes cost so little to produce, governments under financial pressure, especially in wartime, were tempted to print more of them, and the result was inflation. This happened under the later Song emperors, who had to pay for long wars against invaders from the north, and again under the Yuan. The Ming dynasty, which came to power in 1368, issued large notes of its own, but it printed them in such quantities, and made so little effort to redeem them, that their value collapsed. By the middle of the fifteenth century, paper money had largely fallen out of use, and silver had become the basis of the Chinese economy.