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Paper Money

Paper money was first used in China in the 9th century AD. Originally it was called 'flying money' (fei-chien) because it could blow out of your hand. To start with it was used by merchants as a note of exchange, but the government soon caught onto the idea and used it for forwarding tax payments. Real paper money backed by deposited money started in the 10th century.

Unfortunately there are no examples of this first paper money still extant, the note pictured is the earliest known paper money in existence, a 1 Kuan note from the Ming Dynasty (1368-1399). It's known, however, that during the Han Dynasty white money made from deer-skin was used and evolved into the flying money of the Tang Dynasty.

Genghis Khan was instrumental in spreading the idea as he was intrigued when he found its widespread use in China when he conquered it in the 13th century and he adopted it throughout his vast empire. He seized gold & silver, giving paper notes in return and made rejecting it a capital offence. This left the population with no choice and it became accepted as the normal monetary medium as it is now throughout the world.

  

Picture courtesy of Tom Chao's Paper Money Gallery.
This is the 1 Kuan note from the 14th century. Measuring 222mm x 340mm it is the world's largest paper money, in addition to being the earliest known example.

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