The Chinese invented paper money in the late 8th century and early 9th century AD. Initially, it was called “flying money” due to its lightness, which made it easy for the wind to blow it away. The first note was essentially a “promissory note” that was payable on demand rather than actual currency. Merchants could deposit their money in the capital and receive a certificate written on paper to exchange for money in the provinces. The imperial court quickly took over this private venture of currency management as early as 812. 
At that time, taxes and other revenues were transferred from localities to the capital using this method. The “promissory notes” continued to be used but were now issued by court officials in the capital, which could be brought back to the provinces in exchange for goods such as salt and tea.
Paper money truly began to serve as a medium of exchange, backed by a deposit, around the early 10th century in Sichuan province, Southern China. As a result of a private initiative, by the early 11th century, the imperial court allowed 16 private businesses, referred to as “banks”, to issue promissory notes. However, by 1023, the court seized this private enterprise and established an office for issuing paper money in various denominations, guaranteed by deposits. The paper money issued by this bank explicitly stated that it was valid for only three years, along with the issue date and redemption date. By 1107, paper money was printed using multiple woodblocks with at least six colors.
The paper money issued by the imperial court constituted a significant portion of the monetary supply. By 1126, 70 million “tiểu” (one “tiểu” was equivalent to one thousand coins) had been officially issued, the majority of which lacked any backing deposit, leading to significant inflation issues.
Another issue that quickly arose was counterfeiting. Because anyone could print money on paper, authorities had to devise ways to complicate the production of genuine paper money to make it difficult for others to replicate accurately. 
Several sophisticated secret technical measures were rapidly adopted in the creation of paper money, including the use of multiple colors, extremely intricate designs, and the incorporation of fibers into the paper. The basic materials also included silk fibers. It was possible to exchange soiled or worn notes for new ones, but a small fee for printing costs had to be paid.
During the Mongol rule over China, they issued a type of paper money known as “silk money” (ti tệ). The collateral backing this currency was not precious metals but bales of silk. By 1294, Chinese silk money was being used in distant places like Persia. In 1965, archaeologists discovered two pieces of “silk money” from that era.
Later, under the Ming dynasty, the role of paper money diminished. The Ming issued a new type of silver note in 1375 called “Da Ming Tong Bao.” For a long period, up to 200 years, this type of note was issued only in a single denomination and was considered legal tender. This, of course, posed many challenges for commercial activities, despite the circulation of copper coins used for daily transactions. However, due to inflation, the “Tong Bao” currency gradually lost its value and was eventually replaced by minted silver coins.
