From the 1160 Huizi Standard to the 1264 Guanzi Collapse: Southern Song Hyperinflation

In the second lunar month of 1160, facing an acute scarcity of bronze coin and mounting military preparations against the Jurchen Jin Empire, the Southern Song court in Lin’an (modern Hangzhou) authorized Prefect of Lin’an and Vice Minister of Revenue Qian Duanli to establish the Official Huizi Bureau (Huiziku). What began as a localized credit bill printed by Hangzhou merchant clearinghouses (Bianqian Huizi) was transformed by imperial decree into the Southeastern Huizi (Dongnan Huizi)—the first nationwide, legal-tender fiat paper currency in world history. Printed in denominations of one, two, and three strings of cash (later expanded in 1163 with fractional notes of 200, 300, and 500 wen), the Huizi quickly became the primary medium of tax payment, state expenditure, and wholesale commerce across the Yangtze valley and southeastern China. ^[1]

For more than four decades after 1168, Southern Song monetary authorities managed to preserve the purchasing power of paper money through two remarkably modern central-banking mechanisms: strict three-year issue expiration cycles (jie) capped at 10 million strings per issue, and open-market revaluation interventions known as chengti (“weighing and lifting”), in which the state sold silver bullion, gold, silk, and monk ordination certificates (dudie) to retire excess notes whenever market discounts widened. During the thirteenth century, however, protracted two-front wars against the Jin and the rising Mongol Empire shattered every statutory cap. By the 1240s, unredeemed Huizi in circulation surged past 650 million strings, driving Hangzhou rice prices up more than twentyfold until Chancellor Jia Sidao’s desperate 1264 currency replacement—the Gold-and-Silver Guanzi (Jinyin Guanzi)—ignited a terminal hyperinflation before the fall of Hangzhou in 1276. ^[2]

Qian Duanli’s 1160 Dongnan Huizi and the Three-Year Expiration Cycle (Jie)#

During the early decades of the Southern Song (1127–1279 CE), copper mine output in southern China fell to a small fraction of eleventh-century Northern Song levels—dropping from over 5 million strings per year in the 1070s to barely 100,000 to 200,000 strings annually—while illicit smuggling exported vast quantities of Song bronze coins to Japan, Southeast Asia, and the Jin Empire. When Qian Duanli nationalized the issuance of Huizi in Hangzhou in early 1160, he seeded the metropolitan bureau with a modest reserve of 100,000 strings of copper cash and decreed that paper notes could be used alongside bronze coin to pay up to half of all provincial taxes and state monopoly fees under the rule of “half coin, half paper” (zhongban). ^[3]

However, the Jurchen invasion of 1161–1163 prompted the Ministry of Revenue to print over 28 million strings of unbacked Huizi to pay frontline armies, causing the notes to trade at heavy discounts against copper coin. Recognizing that credibility required an institutional ceiling, Emperor Xiaozong (r. 1162–1189) carried out a landmark monetary stabilization in 1166–1168. Using two million ounces (liang) of silver from the Inner Treasury to buy up and burn depreciated notes, the court introduced a strict three-year expiration cycle (jie) modeled on the earlier Sichuan Jiaozi. ^[4]

Under the 1168 jie rule, each numbered series of Dongnan Huizi was strictly capped at 10 million strings (guan, nominally 1,000 copper coins or 770 coins under the “short-string” shengmo standard) and remained valid for exactly three years. At the end of the three-year term, holders exchanged worn old notes at official treasuries for newly printed notes of the next series, ensuring that total paper money circulating across southeastern China never exceeded 10 million strings—or at most 20 million strings during brief overlapping redemption windows. ^[5]

Chengti: Open-Market Bullion and Certificate Interventions#

Because Huizi were not freely convertible on demand at face value into copper cash for private citizens—who would immediately melt down or hoard full-bodied bronze coins—Southern Song officials developed an explicit macroeconomic doctrine known as chengti (“weighing and lifting,” derived from using a steelyard balance to lift up a sinking weight). As articulated by Song statesmen and economic theorists, the state maintained the market exchange rate of paper notes through two complementary levers: “fiscal backing” (xudui, guaranteeing that state tax bureaus and salt, tea, and wine monopolies always accepted Huizi at par for the 50 percent paper portion of mandatory payments) and open-market “real backing” (shidui). ^[6]

Whenever seasonal market demand or temporary military disbursements caused a 1,000-wen (770-coin) one-string Huizi note to fall below roughly 700 or 600 copper coins on Hangzhou’s money markets, the Ministry of Revenue and regional Fiscal Intendants deployed dedicated chengti stabilization reserves (chengti benqian). Rather than depleting scarce bronze coin, treasury agents entered the open market in Lin’an and major commercial hubs to sell high-value state assets strictly in exchange for paper Huizi—including 50-ounce silver ingots (ting), gold leaf, state silk stocks, salt and tea monopoly vouchers (yanyin and chayin), and blank Buddhist or Daoist monk ordination certificates (dudie, which carried lucrative lifetime exemptions from corvée labor and property taxes). ^[7]

Once collected through these open-market asset sales, the excess Huizi notes were publicly incinerated in the capital, contracting the money supply until the market exchange rate rebounded toward par. Throughout the reign of Emperor Xiaozong and into the 1190s, this combination of the 10-million-string jie ceiling, mandatory tax acceptance, and chengti silver-and-certificate open-market operations kept the one-string Huizi trading steadily between 700 and 750 copper coins, ushering in a golden age of Southern Song commercial prosperity. ^[8]

The Breakdown of the Jie System and the 650-Million-String Deluge#

The discipline of the Huizi standard began to crack during the abortive northern military campaign of Chief Councillor Han Tuozhou against the Jin Dynasty in 1206–1207 and collapsed completely once the Mongol-Song wars erupted in the 1230s. Already in the 1190s, officials had quietly doubled and tripled the secret printing runs of each three-year series to 30 million strings while keeping two or three series circulating simultaneously. During the 1206 war crisis, the court printed the 11th, 12th, and 13th series concurrently without retiring older notes, pushing active circulation above 110 million strings.

In 1209, facing a market panic in which old series traded at less than half of face value, the government suspended the three-year expiration cycle and compelled holders to exchange two strings of old 11th–13th series notes for one string of new 14th-series notes—an explicit 50 percent sovereign default. Worse followed in 1234, when the allied Song and Mongol armies destroyed the Jin Dynasty and almost immediately went to war against each other along a two-thousand-mile frontier stretching from Sichuan to the Huai River.

By the 1240s, the Hangzhou court had abolished both the three-year expiration limit and all statutory issue caps on the 16th, 17th, and 18th series of Huizi. By 1246, combined circulation of the 17th and 18th series reached an astronomical 650 million strings—more than sixty-five times the original 1168 ceiling. In 1247, Emperor Lizong formally decreed that the 17th and 18th series would circulate permanently without expiration (“perpetual circulation,” yongbu gengjie). As paper notes flooded the Yangtze valley, Gresham’s Law operated with ruthless speed: copper coins vanished completely into private hoards or overseas smuggling junks, and a one-string 18th-series Huizi plummeted to less than 50 copper coins. In the markets of Hangzhou, the price of a single shi (roughly 66 liters) of rice soared from 2 to 3 strings of cash in the late twelfth century to over 50 to 100 strings of 18th-series Huizi by the late 1250s.

Jia Sidao’s 1264 Gold-and-Silver Guanzi and Final Monetary Collapse#

Having failed to halt paper depreciation through his 1263 Public Fields confiscations, Chief Councillor Jia Sidao launched a final, drastic currency conversion in the winter of 1264. Declaring that the depreciated 17th and 18th series of Huizi could no longer be salvaged through incremental chengti buybacks, Jia Sidao introduced a brand-new paper currency modeled on the engraved copper plates of northern frontier military vouchers: the Gold-and-Silver Cash Voucher, or Jinyin 見錢 Guanzi (commonly known as the Jinyin Guanzi).

Printed in bold black and red ink with anti-counterfeiting patterns, each one-string Guanzi was proclaimed equal to 770 full-bodied copper coins. Simultaneously, the state decreed a punitive forced conversion rate: one string of the new 1264 Guanzi was set equal to three strings of the 18th-series Huizi, while the older 17th-series Huizi was demonetized and withdrawn completely, wiping out two-thirds to 100 percent of existing paper balances held by urban merchants, soldiers, and depositors.

Despite its grand title—”Gold-and-Silver Voucher”—Jia Sidao’s new currency possessed virtually no bullion reserve and was immediately printed in tens of millions of strings to finance the five-year defense of the twin fortress cities of Xiangyang and Fancheng against Kublai Khan’s forces. Urban shopkeepers in Hangzhou shut their doors rather than sell rice and silk for unbacked Guanzi, prompting Jia Sidao to deploy police patrols to arrest merchants who raised prices or refused the notes. By 1273, when Xiangyang fell to the Mongols, a single shi of rice in Hangzhou cost hundreds of strings of paper vouchers. When Empress Dowager Xie surrendered Lin’an to the Yuan general Bayan in February 1276, the new Mongol administration swiftly demonetized the worthless Song Huizi and Guanzi, replacing them at a ratio of fifty strings of Song paper to one string of silver-backed Yuan Zhongtong Chao and bringing China’s first great fiat hyperinflation to a close.

Theoretical & Balance-Sheet Transmission Mechanism#

In the Kindleberger–Minsky taxonomy of financial instability (Kindleberger, 1978; Minsky, 1986) and Irving Fisher’s (1933) debt-deflation framework, speculative asset booms become systemic crises when credit expansion shifts balance sheets from hedge finance (cash flows covering principal and interest) to speculative and Ponzi finance (relying on rising asset prices and short-term margin roll-overs).

Once monetary tightening or an exogenous shock halts price appreciation, forced margin liquidations trigger Fisherian debt-deflation: fire-sale asset discounts erode bank collateral values, contracting credit supply across the real economy.

Sources and Further Reading

1. niv Horesh / Helen Dunstan and Cecilia L. Chu, “ ‘Cannot Be Fed On When Starving’: An Analysis of the Economic Thought Surrounding China’s Earlier Use of Paper Money,” Journal of the History of Economic Thought (Cambridge University Press), 2022. Peer-Reviewed / Academic Research
2. Ulrich Theobald, “ Huizi 會子 and Guanzi 關子 — Southern Song Paper Currency,” ChinaKnowledge.de: An Encyclopaedia on Chinese History, Literature and Art, 2016. Historical & Financial Reference
3. Richard von Glahn, “ Public Finance and Monetary Policy (Chapter 9) — The Cambridge Economic History of China,” Cambridge University Press, 2022. Peer-Reviewed / Academic Research
4. Asia for Educators, “ Paper Money in the Song Dynasty: Jiaozi and Huizi,” Columbia University Weatherhead East Asian Institute, 2008. Peer-Reviewed / Academic Research
5. Ulrich Theobald, “ Jia Sidao 賈似道 and the 1264 Jinyin Guanzi Currency Reform,” ChinaKnowledge.de: An Encyclopaedia on Chinese History, Literature and Art, 2016. Historical & Financial Reference
6. Chinese Text Project, “ Song Shi 宋史 (History of Song), Treatise on Food and Money: Huizi and Guanzi,” Chinese Text Project Digital Library, 2020. Historical & Financial Reference
7. Irving Fisher — "The Debt-Deflation Theory of Great Depressions," Econometrica 1, no. 4 (FRASER Federal Reserve Archive, 1933): 337–357 Central Bank / Monetary Authority
8. Charles P. Kindleberger & Robert Z. Aliber — Manias, Panics, and Crashes: A History of Financial Crises (Palgrave Macmillan) Peer-Reviewed / Academic Research

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