Currency was already being produced in China as early as the Xia dynasty (ca. 2100–ca. 1600 BCE). Beginning in the Qin and Han dynasties (221 BCE–220 CE), the basic shape of Chinese currency was established—a round-shaped copper or copper alloy coin with a square hole in the middle, generally strung together for ease of transport, and this had a far-reaching influence on neighboring states and regions. From the Sui and Tang dynasties (581–907) onward, Korea, Japan, and other East Asian states modeled their currency on and or utilized that of China. By the end of the Song dynasty (early thirteenth century), Chinese coinage was so widely used that it became the main currency in many regions of Southeast Asia. It was also in the Song dynasty that paper money, the earliest in the world, began to be employed in China; this too came to influence the currency of other lands.

The coin is one of the most widely used of metal currencies. In China distinctive types of coins are associated with different dynasties. Among the most well-known are: from the Qin, the ban liang, so named after its inscription indicating one half of a liang or tael, a unit of weight; from the Han, the wu zhu, so named after its inscription indicating five zhu, another unit of weight; from the Tang, the kaiyuan tongbao, deriving its name from its inscription meaning “inaugural circulating treasure”; and from the late Qing dynasty (late nineteenth century), the copper or copper-alloy yuan (dollar) and related coins, its name derived from a character in its inscription. During this same time, various special currencies also appeared in China, some of which are now treasured. Among these are assorted blessing or good luck coins which functioned somewhat like a charm as well as rarities referred to as “error coins” caused by manufacturing mistakes such as duplicated or reversed placement of inscriptions.

According to written records gold and silver currency existed from an early time in China. During the Spring and Autumn and the Warring States periods (770–221 BCE), gold and silver were cast in particular shapes and used as currency. This includes what is called yuan jin or yuan gold which consists of shallow squares assembled into gold slabs, yuan interpreted as a weight or denomination and this character also sometimes appearing among those on the squares. It also comprises spade-shaped coins made in silver known as yin bu, as well as cowrie-shell shapes in these metals—such imitation, in various materials, of the shape of valued items such as tools or natural treasures was common in China prior to the unification of currency under the Qin and its consolidation under the Han and the adoption of the round square-holed coin as standard. During the Song and Yuan dynasties (960–1368) the value of a silver ingot was based on weight. In the following Ming and Qing dynasties (1368–1911) silver became the standard currency, with the silver ingot, and then later the silver yuan (dollar) coin widely circulated in the late Qing. The silver ingot and the silver dollar are the representative types of currency made of precious metals in these dynasties.

The emergence of paper money was a great advance in the development of currency. (Its roots are traced by some scholars as early as the Han dynasty with the limited use of what is described as a kind of thin leather currency, but the direct precursor of paper money dates to the Tang dynasty.) Itself made of the by then common medium of paper it was known as feiqian (flying money) because it was easy to carry around. It was eventually accepted and utilized by the government. A type of draft or promissory note given to someone by those with whom was left an amount of coinage, the note would be later returned and the coins retrieved. Because of its limited function feiqian is not regarded by most as paper money per se. It was in the Northern Song dynasty (960–1127) that the earliest circulating notes—paper money—called jiaozi (exchange medium) appeared in Sichuan province as privately issued credit certificates or vouchers. In the eleventh century the Northern Song government began to issue its own paper currency. Eventually there was much expansion in this sector of legal tender in the Northern and then the Southern Song dynasty. Among the various types of paper money which developed in the Southern Song period the huizi (check medium) was the most widely circulated currency. In North China, copper deposits and consequently copper production was less than in South China, and thus in North China under the Jin dynasty (1115–1234) paper money had precedence over that made of metal—it was issued by the government before the manufacture of coins. During the Yuan dynasty (1271–1368), most of the time, only paper money could legally be used. Gold, silver, copper or copper-alloy coins were prohibited. At the beginning of the Ming dynasty (1368–1644), its founder, Emperor Taizu (r. 1368–98) issued the Da Ming tongxing baochao (Great Ming circulating treasure note), which became the only official paper currency stipulated by the Ming court. During the Qing dynasty, the court was cautious about using paper currency due to fears related to it causing inflation and the like. Paper money was only temporarily issued once during the reign of Qing Shunzhi emperor (Emperor Shizu, r. 1643–1661) and not again for another two hundred years. Toward the end of the Qing, however, concerns about inflation and other issues were set aside because of the country’s financial difficulties. Policies of paper currency and large denomination coinage appeared at this time.

Commodity currency also played a role in China’s history. Through the centuries, food, especially grains and cloth, especially silk were the most important commodities used as currency. The function of gold as a currency faded during the Eastern Han (25–220), while the function of silver increased in the Song and Yuan. During the interval of 700–800 years between the Eastern Han and the Song, currency itself was devalued, and could only be used in small transactions. In large transactions, grains and silks became increasingly important and were the most relied-upon and high-status currency, their function as this reaching a peak.

In ancient China the materials used in making currencies were rich and diversified. In addition to gold, silver, copper, iron, and paper, there were lead, tin, and clay. From the Qin dynasty to the Qing, the development of metal casting technology was relatively slow, based on the basically the same molding methods. It was not until the late Qing that machines were imported in which coins were mechanically minted, and are usually described as “struck” not cast. With regard to paper money, invented in China, block or plate printing used originally for other purposes such printing Buddhist texts and the like was adopted for printing money. Plates could be made of copper or copper alloy, wood, lead and so forth. Because of the large quantity of paper money to be printed and the consequent wear and tear on the plate, most paper money was printed by copper or copper alloy plate as this was the sturdiest material for this task.

After money is issued, printed, or minted, it enters the process of circulation. The relationship between monetary supply and demand is not completely equal: it is prone to inflation when supply exceeds demand; it leads to deflation when demand exceeds supply. Sometimes currency is taken out of circulation by a government because of an oversupply and at other times hoarded into a cache by individuals to accumulate personal wealth, and in that way, too, currency can be taken out of circulation.

Long-term coexistence of various currencies requires conversion from one currency to the other. One example of this would be the transferring of a large amount of money from one country to another, each place having its own currency which results in the necessity of foreign exchange. Banking institutions such as qianzhuang (money banking shops) and piaohao (a type of draft bank) emerged in the Qing dynasty which dealt with these and other issues. At that time a wide range of domestic and foreign exchanges resulted in frequent interchange and movement between Chinese and foreign currencies; this continues to this day.