Tales of Soft Money — Kublai’s Alchemy


Update 2020-02-18: This article is updated with further sources to better reflect its chapter in the book, Money Dethroned.

After a brief visit to the Malay Archipelago, 14th century traveler Ibn Battúta finally reached the Empire of the Great Khan (who at the time was Toghon Temür of the Yuan dynasty, a descendant of Genghis Khan):

The land of China is of vast extent, and abounding in produce, fruits, grain, gold and silver. In this respect there is no country in the world that can rival it. (Battúta, 1325-1354, p. 282)

Bark of the Mulberry Tree

After speaking briefly on the agricultural produce of the land and its quality pottery, Battúta turned his attention to a phenomenon common today, but very rare in the 14th century: the use of paper-money:

The Chinese use neither [gold] dinars nor [silver] dirhams in their commerce. All the gold and silver that comes into their country is cast by them into ingots, as we have described. Their buying and selling is carried on exclusively by means of pieces of paper, each of the size of the palm of the hand, and stamped with the sultan's seal. Twenty-five of these pieces of paper are called a balisht, which takes the place of the dinar with us [as the unit of currency]. [...] If anyone goes to the bazaar with a silver dirham or a dinar, intending to buy something, no one will accept it from him or pay any attention to him until he changes it for balisht, and with that he may buy what he will. (Battúta, 1325-1354, p. 284)

Similar observations had been made half a century earlier, by Venetian explorer Marco Polo. Marco's story in China started with his father and uncle, who after having set out from Constantinople to Crimea reached as far as Kublai Khan's Mongol empire in China. Impressed by the two Venetians, the Khan had sent them back to Europe, and more specifically to the Pope, to fetch a hundred learned Christians for the Mongol court. With a golden tablet received from the Khan, they could pass unmolested throughout his dominion. Upon having arrived in Acre - then still possessed by the Crusaders - they had learned that the Pope was dead and that no new had yet been chosen. This prompted the two brothers to return to Venice to see to their households, where a 15-year-old Marco awaited them and met them for the first time. Marco joined the party that again set out for Kublai's court.

His description of the Khan's paper money have him appear more impressed than Battúta:

Now that I have told you in detail of the splendour of this City of the Emperor's, I shall proceed to tell you of the Mint which he hath in the same city, in the which he hath his money coined and struck, as I shall relate to you. And in doing so I shall make manifest to you how it is that the Great Lord may well be able to accomplish even much more than I have told you, or am going to tell you, in this Book. For, tell it how I might, you never would be satisfied that I was keeping within truth and reason!

The Emperor's Mint then is in this same City of Cambaluc [Beijing], and the way it is wrought is such that you might say he hath the Secret of Alchemy in perfection, and you would be right! For he makes his money after this fashion.

He makes them take of the bark of a certain tree, in fact of the Mulberry Tree, the leaves of which are the food of the silkworms - these trees being so numerous that whole districts are full of them. (Polo, The Book of Ser Marco Polo, the Venetian Vol I, 1271-1295, p. 378)

Polo, described by translators of his documentations as generally radiating "little or no humour or emotion" in his recounting, clearly was astonished by the fact that Kublai Khan made money from a tree. He would likely have been more surprised had he known that the silk produce of the mulberry tree worms previously had been money in China, and that even the mulberries themselves had been money in Turkestan (Quiggin, 1949, p. 192). Henry Yule, as he translated Rustichello's notes, commented on Polo's reaction:

Of humour there are hardly any signs in his Book. His almost solitary joke [...] occurs in speaking of the Kaan's paper-money, when he observes that Kublai might be said to have the true Philosopher's Stone, for he made his money at pleasure out of the bark of Trees. (Polo, The Book of Ser Marco Polo, the Venetian Vol I, 1271-1295, p. cxxxiii)

Broken Promises

As with all claims of successful alchemy, this appears to have been greatly overstated as well. Yule commented critically on the Khan's paper money:

The issue of paper-money in China is at least as old as the beginning of the 9th century. In 1160 the system had gone to such excess that government paper equivalent in nominal value to 43,600,000 ounces of silver had been issued in six years, and there were local notes besides; so that the Empire was flooded with rapidly depreciating paper. The Kin or "Golden" Dynasty of Northern Invaders who immediately preceded the Mongols took to paper, in spite of their title, as kindly as the native sovereigns. Their notes had a course of seven years, after which new notes were issued to the holders, with a deduction of 15 per cent. [...]

The Mongols commenced their issues of paper-money in 1236, long before they had transferred the seat of their government to China. Kublai made such an issue in the first year of his reign (1260), and continued to issue notes copiously till the end. In 1287 he put out a complete new currency, one note of which was to exchange against five of the previous series of equal nominal value! In both issues the paper-money was, in official valuation, only equivalent to half its nominal value in silver. The paper-money was called Chao. (Polo, The Book of Ser Marco Polo, the Venetian Vol I, 1271-1295, pp. 380-381)

In other words, it appears that Polo's marvels at the phenomenon of paper money were slightly premature, albeit understandable. It probably didn't occur to him to fully appreciate the danger of having the state being able to produce money at a minimal cost. The Khan's money, by design, could be mass produced to the detriment of all its holders.

In fact, such mass production may have been the very reason Kublai Khan then sat on his throne in the first place. The Chinese Song dynasty, which fell to the Mongols in the 13th century, had through paper money degraded the commercial state of their empire, and so also the defense, which caused Peter St. Onge to argue that the inflation itself was the main course of this fall:

This fiat-money-enabled economic stagnation and fiscal deadweight then led to proximate causes of the Song's decline: high inflation, widespread corruption, a series of aggressive wars with neighbors, and alienation of local landlords, merchants, and producers. Combined, these results facilitated what would otherwise have been an unlikely conquest by much smaller neighbors. (Onge, 2017, p. 224)

Yule continues his more neutral take of the history of Chinese paper money:

To complete the history of the Chinese paper-currency so far as we can: In 1309, a new issue took place with the same provision as in Kublai's last issue, i.e. each note of the new issue was to exchange against 5 of the last of the same nominal value. And it was at the same time prescribed that the notes should exchange at par with metals, which of course it was beyond the power of Government to enforce, and so the notes were abandoned. Issues continued from time to time to the end of the Mongol Dynasty. The paper-currency is spoken of by Odoric (1320-30), by Pegolotti (1330-40), and by Ibn Batuta (1348), as still the chief, if not sole, currency of the Empire. According to the Chinese authorities, the credit of these issues was constantly diminishing, as 'tis easy to suppose. But it is odd that all the Western Travellers speak as if the notes were as good as gold. Pegolotti, writing for mercantile men, and from the information (as we may suppose) of mercantile men, says explicitly that there was no depreciation. (Polo, The Book of Ser Marco Polo, the Venetian Vol I, 1271-1295, p. 382)

This is strange indeed. Marco Polo also corroborates Battuta's claim that notes were readily taken by merchants. The fact that not accepting them meant capital punishment might have had something to do with it. Yule also mentions that the 14th-15th century Ming dynasty that succeeded Toghon Temür's failing Yuan dynasty, made use of paper money as well, but that it only paid with notes while demanding payments in "hard cash" (meaning silver and gold). In 1448 A.D. the Chao of 1000 cash, according to Yule, was worth only 3, and the paper-money system fell into disuse.

Yule ends the explanatory note on Chinese paper money by mentioning, at that time, current developments on the subject:

Some fifteen years ago [counting from 1871] the Imperial [Chinese] Government seems to have been induced by the exhausted state of the Treasury, and these large examples of the local use of paper-currency, to consider projects for resuming that system after the disuse of four centuries. A curious report by a committee of the Imperial Supreme Council, on a project for such a currency, appears among the papers published by the Russian Mission at Peking. It is unfavourable to the particular project, but we gather from other sources that the Government not long afterwards did open banks in the large cities of the Empire for the issue of a new paper currency, but that it met with bad success. At Fuchau, in 1858, I learn from one notice, the dollar was worth from 18,000 to 20,000 cash in Government Bills. Dr. Rennie, in 1861, speaks of the dollar at Peking as valued at 15,000 and later at 25,000 paper cash. (Polo, The Book of Ser Marco Polo, the Venetian Vol II, 1271-1295, pp. 382-383)

In other words, the spectre of easy money never stopped haunting China. As Yule mentioned, four centuries of disuse was apparently enough for Chinese authorities to forget the country's bad experiences with such a system.

Yule also mentions a vague connection between Marco Polo and yet another attempt at paper-money in Persia at the time of Polo's travels. Having exhausted the Treasury in 1294 A.D., Kaikhatu Khan, on the suggestion of an innovative financial officer named Izzuddin Muzaffar, introduced a copy of the Chinese Chao money in the districts under his control. Even details like Chinese characters were present on the notes, as was the name Chao itself. Yule:

After the constrained use of the Chao for two or three days Tabriz was in an uproar; the markets were closed; the people rose and murdered 'Izzuddin; and the whole project had to be abandoned. (Polo, The Book of Ser Marco Polo, the Venetian Vol I, 1271-1295, p. 384)

These remarkable examples of economic stupidity are clear examples of the lure of easy money. The supposedly redeemable banknotes of the many Mongol and Chinese dynasties would ultimately fail due to the fact that the unanswerable authority, with its immense power and soldiers, had few incentives to keep the redeemability intact. Wars were costly and frequent in 13th and 14th century China, which could be what pushed the authorities to the point where they decided to print more notes than they had backing for in specie. Any initial hardness of the Khan's paper money was always artificial, and this money, like so many others, was ultimately dethroned as well.

Chinese Authoritarianism

On a related note, it is likely not a coincidence that paper money first emerged in a part of the world wrought with deep-rooted authoritarianism. Such traces could be observed by multiple medieval travelers, and not only with regards to the harsh punishment in not accepting the Khan's paper money. Various monies, like silk and wheat, had long before the Mongol Khans been forbidden as such in China (Einzig, 1949, p. 285). And as we will later see was the case with the Sultanate of Delhi, the city of Cambaluc, or "The City of the Emperor", suffered forced migrations through central planning as well, though far from as severe as its Indian counterpart. The moving of the city was mandated by Kublai Khan, on information from his astrologers that the old Cambaluc would prove rebellious and troublesome. Also like in the Sultanate of Delhi, the Khan's secret police seems, according to Battúta, to have had a habit of gathering information on all foreign travelers:

When I visited the sultan's city I passed with my companions through the painters' bazaar on my way to the sultan's palace. We were dressed after the `Iraqí fashion. On returning from the palace in the evening, I passed through the same bazaar, and saw my portrait and those of my companions drawn on a sheet of paper which they had affixed to the wall. Each of us set to examining the other's portrait [and found that] the likeness was perfect in every respect. I was told that the sultan had ordered them to do this, and that they had come to the palace while we were there and had been observing us and drawing our portraits without our noticing it. This is a custom of theirs, I mean making portraits of all who pass through their country. In fact they have brought this to such perfection that if a stranger commits any offence that obliges him to flee from China, they send his portrait far and wide. A search is then made for him and wheresoever the [person bearing a] resemblance to that portrait is found he is arrested. (Battúta, 1325-1354, pp. 285-286)

The surveillance extended to all the hostelries in the vast empire as well:

At every post-station in their country they have a hostelry controlled by an officer, who is stationed there with a company of horsemen and footsoldiers. After sunset or later in the evening the officer visits the hostelry with a clerk, registers the name of all travellers staying there for the night, seals up the list, and locks them into the hostelry. After sunrise he returns with his clerk, calls each person by name, and writes a detailed description of them on the list. He then sends a man with them to conduct them to the next post-station and bring back a clearance certificate from the controller there to the effect that all these persons have arrived at the station. If the guide does not produce this document, he is held responsible for them. (Battúta, 1325-1354, p. 287)

The Khan, at least as Polo visited the country, also imposed curfew in the cities every evening. Anyone found outside after a certain hour was arrested, according to him:

Moreover, in the middle of the city there is a great clock - that is to say, a bell - which is struck at night. And after it has struck three times no one must go out in the city, unless it be for the needs of a woman in labour, or of the sick. And those who go about on such errands are bound to carry lanterns with them. Moreover, the established guard at each gate of the city is 1000 armed men; not that you are to imagine this guard is kept up for fear of any attack, but only as a guard of honour for the Sovereign, who resides there, and to prevent thieves from doing mischief in the town. (Polo, The Book of Ser Marco Polo, the Venetian Vol I, 1271-1295, p. 332)


Guards patrol the city every night in parties of 30 or 40, looking out for any persons who may be abroad at unreasonable hours, i.e. after the great bell hath stricken thrice. If they find any such person he is immediately taken to prison, and examined next morning by the proper officers. (Polo, The Book of Ser Marco Polo, the Venetian Vol I, 1271-1295, p. 368)

It is quite evident that the desire to control money stemmed from an overarching desire to have power and control over subjects, who were then ever so often, in times of war or just frivolous royal spending on palaces or harems or the like, reduced to a toiling collective of nameless serfs.