Social Sciences in China (Chinese Edition)

No. 5, 2025

Monetary Creation and the Divergence of Monetary Systems between China and the West

(Abstract)

Yan Hongzhong and Zhuang Yan

While currency has played a critical role in the development of both Eastern and Western civilizations, its historical significance has been especially profound in China. The invention of state-issued paper money during the Song dynasty marked the first major divergence in the evolution of monetary systems between China and the West. From the mid-Ming dynasty onward, as the state gradually ceded control over currency issuance, private institutions took the lead. This shift gave rise to a regionally differentiated monetary system characterized by diverse currency forms and multilayered credit hierarchies. Mechanisms such as bookkeeping, fund transfers, write-offs, credit payments, reconciliation, settlement and interregional remittance enabled a flexible money supply and dynamic credit expansion. In contrast, the West developed a centralized banking system through a gradual transition from bimetallism to the gold standard and, eventually, to fiat currency issued and managed by banks. This trajectory formed the basis for the second major divergence between Chinese and Western monetary systems. From the Ming and Qing periods through the modern era, China’s monetary development and culture have together followed a unique path. Its highly multilayered currency system, short-term credit mechanisms, and innovation in monetary and credit instruments resulted in a fundamentally different mode of monetary evolution from that of the West. Examining these two divergences offers a new perspective for deeply understanding the historical development paths and civilizational characteristics of the two regions.