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Let’s shift the scene back to 1262, when the two poles of world civilization, Venice in the West
and the Southern Song in the East, both faced the specter of war (bóng ma chiến tranh), and funding for these wars hung by a thread. Almost simultaneously, the authorities of both places came up with plans to deal with their emergencies, both involving the most advanced financial innovations of that time. The Southern Song’s Jia Sidao raised military funding by using the steadily devaluing huizi to buy up public land the strip the populace of wealth. Venice took a different road: Its parliament (quốc hội) authorized the government to mortgage (thế chấp) its tax revenue (tiền thu thuế), and when a fiscal deficit (thâm hụt tài chính) developed, the administration issued government bonds paying interest of 5 percent. In retrospect, Venice’s financial innovation summoned the magic power of public debt as capital and effectively led Europe into an era of financial revolution. As for china, the excessively issued huizi did not regain the favor of the market; rather, public discontent and unrest threw open the door for invasion by the Mongolians.

…we witness China taking the lead on finance and currency, but in the wrong direction. China, at a very early stage, had “flying money” (feiqian) for remitting funds, as well as pawnshops, silver shops, and other such establishments for credit transfer; the Song dynasty’s paper currency originated in private institutions; and private local banks (qianzhuang) and money-exchange shops (piaohao) experienced extraordinary growth in the Ming and Qing dynasties. So why didn’t China produce a modern banking industry?

…The unbankability of China’s currency led to the failure of China’s paper currency system and forced it to take the silver route. Without banks, and without the coinage of silver, progressing from bank notes to paper currency was out of the question. Currency could only exist in the form of confusing and outmoded metage currency.