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The Formation of the Modern East Asian Economy
They thus decreed artificial values, restricted usages, and issued different qualities of copper coin, all under the recurring illusion that the Chinese court could dictate to the rest of the empire and even East Asia the market value of their coin. When reality, as it inevitably did, broke through the imperial gates, they sought a variety of solutions to this persistent problem.

First, we can mention the easiest solution, that of debasement. From the seventh century up to the early twelfth century, the feature of Chinese currency which helped assure its use throughout East and southeast Asia up to the last century was its reasonably stable copper content. During the peak years of mintage in the late eleventh century, government coins usually contained 65% copper, 25% lead, and 10% tin. From the 1130s to the 1270s, however, a severe military and financial crisis hit the Chinese government thanks to the Jurchen conquest of north China. Consequently, it felt compelled to debase the metal contents of its new issues of copper coins. In them lead counted for 50 to 60 %, copper just 40%, and tin 5%. Over time, this practice only invited widespread hoarding of good coin and the counterfeiting of even worse coins. And when fifteenth and sixteenth century Chinese emperors issued better coins, it only confirmed Gresham's law that "bad coin drives out good." Overall, then, the twelfth to the seventeenth century saw a significant decline in the quality of Chinese copper coins and thus a far less welcome in China and the rest of Asia for these new coins than for the old Tang and Sung coins.

The solution to copper shortage most favoured by Chinese governments from roughly 1100 to 1450 was the issuance of paper money. Paper government notes had been used in western China since the 1020s, and bills of exchange had been commonly used even earlier by merchants to transfer funds from city to city. But in 1160, the Southern Sung government's introduction of new convertible paper money for the more economically advanced areas of south China was coupled with its preference for this paper money over silver and gold in many of the same areas. Then, from 1173 it registered its official income and expenditures half in this paper money and half in copper cash, a policy which only spurred on the hoarding and leakage abroad of copper cash. Remarkably, these paper notes retained their value in private transactions right up to the 1190s, as the government's new monetary system linked the value of the issued paper currency to its stock of precious metals, some 20 million strings of copper cash. But, from the early thirteenth century, soaring military expenses pressured the government into issuing 12 times more paper money than this storehold figure.

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