Question

Why was the Song dynasty’s shift to paper currency an improvement over coin currency?

Answer 1

Paper currency or banknotes are pieces of paper that carry a payment promise for the currency written on them and which is payable to the bearer on demand. At the beginning, banknotes were issued by commercial banks that backed their value by holding reserves of gold and silver coins. Nowadays, its value is fiduciary, it is not backed by any physical good of the same value.

The development of paper currency by Song's dinasty meant a considerable improvement from merchants and traders at those times. Paper money was much easier to transport if compared to coins, both in terms of size and weight. Merchants could travel for a longer time carrying their profits with them on the way and became more efficient in their businesses.