Flying cash (飛錢) was a paper currency of the Tang dynasty in China and can be considered the first banknote.
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Origins
Due to the inconvenience of transferring large amounts of the standard copper cash coins over large distances, the Tang government started to pay merchants with whom they did business in paper money. Before long, printed money became more common than minted coins for trading purposes. Due to their tendency to fly away, the notes were dubbed "flying cash."
Use
Flying cash was never originally meant to be used as legal tender and, therefore, their circulation was limited. However, since they could be exchanged for hard currency at the capital, they were traded amongst merchants as if they were currency. It was not until the Song dynasty and subsequent Jin occupation that paper money was officially established as a legal tender. Eventually, the Song Dynasty began to issue more notes to pay its bills- a practice that ultimately contributed to runaway inflation. The use of paper money spread westward through Mongol traders and, by 1661, European countries were printing paper currency.