Financial history: how did paper money appear in China?

Imagine going to the market with a sack of iron coins. In China's Sichuan region this was not imagination but everyday life, and it was precisely this weight that gave birth to paper money.

1. Where and when? The jiaozi is often mentioned as the first paper money in history. It appeared in China during the Song dynasty (960–1279), in what is now Sichuan.
2. Why paper? Heavy iron coins circulated in Sichuan. Private merchants began issuing paper certificates in their place: instead of carrying coins, people circulated a paper recording the right to receive them.
3. The state took over. According to the sources, in 1024 the Northern Song government set up a special office in Chengdu and took the issue of jiaozi under its control. In China 2024 was celebrated as the 1000th anniversary of state paper money.
4. The first lessons in inflation. Later the jiaozi lost its value. According to the sources, the main reasons were that too much paper money was issued and that it was not sufficiently backed by a reserve of coins.
5. The main idea. Paper money has no value in itself; its value comes from trust in the issuer. If trust is lost or too much paper is printed, money loses its value.
6. The link with today. Today's money also has almost no value in itself. Preserving its value is the task of the central bank's monetary policy.

Example (prepared by the author, hypothetical figures). A city has 1 000 units of coins and goods of the same value. The government prints another 1 000 units of paper money, but the goods do not increase. Now there are 2 000 units of money in the market, while the goods are the same as before. Sellers raise prices: a sack of rice that used to cost 10 units now approaches 20 units. This is the simplest mechanism of inflation: money growing faster than goods.