See Inside September 2009

Paper Money

A substitute for coins turned into a passport for globalization

Blame it on paper currency. The development of banknotes in China more than a millennium ago accelerated wealth accumulation, deficit spending and credit extension—paving the way for our present-day financial crisis.

When Chinese merchants started using paper money in the Tang Dynasty (which spanned A.D. 618 to 907), they could have hardly foreseen such difficulties. At the time, the introduction of notes that could be redeemed for coins at the end of a long journey was a boon. Paper cut down on traders’ loads, enabling them to transport large sums of money over sizable distances.

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