Jiaozi (currency)

Generally the lower the denominations of the Jiaozi the more popular they became, and as the government was initially unable to regulate their production properly, their existence eventually led to undesirably high inflation rate.

As bankruptcy plagued several merchant companies the government nationalised and managed the production of paper money and founded the Jiaozi wu (交子務) in 1023.

The root cause of this inflation was attributed to the fact that the Song government didn't back their paper money up with a sufficient number of coins.

One of the causes of inflation was the outflow of currency to the neighbouring Jin dynasty to the north, which is why iron cash coins were introduced in border regions.

[3][4] In 1192 the exchange rate between iron cash coins and Jiaozi banknotes was fixed at 770 wén per guàn by Emperor Guangzong, but inflation would still remain an issue despite these measures.

As these Jiaozi banknotes proved their usability private merchants began issuing their own notes in the north of the country and members of the military would receive their pay in paper money.