By Dr. Ali Sharghi

Most Europeans, including western economists and scholars, still believe that the banking industry and bank notes are the products of the so-called ‘modern’ civilizations; this is not true. Even the art of printing, which Guttenberg has been credited for its invention, was not really a European innovation.
Persia and China were practicing the art of printing when Europe was sunk in barbarian times.
700 years ago in Persia there were at least 9 centers for printing and this was also true on a larger scale in China.
Before we focus on our subject, “the first issuance of paper money in Persia” Citing the development of banking will be helpful. To put it simply, banking means the business of money arid credit. Using this simple definition it becomes obvious that the banking concept originated where currency was introduced and it is a known fact that Persia was among the first empire that introduced metal money or coins to the world.
The Greeks and Romans were the first two western nations that later learnt this concept through trade with the Phoenicians. In 121h century Rome, there was a tradition that on each holiday the money exchangers gathered in busy squares; sitting on special benches and providing primitive banking services to the public. In Italian these special benches were called “Banko”.
Gradually the name of this industry became “Banko” and finally “Bank”.
The case of paper money is even more interesting. By way of example, the author asked a class of 500 U.S. university students which country they thought was the first to introduce bank notes. Most named a European country and guessed that money was printed and circulated about 200 years ago. The fact is that this year is the 700th anniversary of the introduction of paper notes in Persia.
The first known reference to paper money issuance in the Persian language is from the famous historian Vassaf which was later referred to in the works of two other historian, Mirkhond and Khondmir. The first known reference in English is in John Malkam’s two volume “History of Persia” published in London in 1815. Toward the end of the last century there was an article entitled “Banking in Persia” published in January of 1892. The author of this article was the president of the imperial Bank of Persia, Joseph Robino. Robino used the same work of the historians as mentioned above, which was translated for him by General II. Schindler, who was one of the directors of the Imperial Bank of Persia. Robino also gave a lecture at the Institute of Bankers in London in 1892, which included the following famous statement.
Turning to the first Persian noted and the reasons behind their issuance. In 1294 AD (693,Hijreh) the Shah of Persia was Kai-Khatu from the Ilkhanian dynasty. In that year there was great national chaos, not only due to the extreme financial extravagance of the Shah but also to a strange national epidemic, which Vassaf called Yut, and Mirkhond later renamed, Uta-Mishi. Yut seems to be a Mongolian word and was a type of cattle disease which had the effect of plague among livestock. This disease had broken out among sheep and cattle and had destroyed most of the country’s livestock, which was the main source of the nation’s income. As a result, it had left the country’s treasury practically empty and as Vassaf wrote, “Nothing in the shapc of gold or silver remained in the treasury of the Shah.”
The prime minister, Sadre-Jahan, did his best to raise money in Baghdad and Shiraz but failed. He also unsuccessfully tried to persuade the Shah to spend less. During this critical situation, the prime minister’s financial advisor, lu Eddin Muzafer Ibu Mohammad Ibu Amid, who was a knowledgeable person and had seemingly obtained hi education in China, came up with a solution. Re suggested to the Sadre Jahan that the best way of getting out of this difficulty would be to issue “Chaw” or paper money as the Chinese had done. As Miarkhond indicated, “By the circulation of Chaw, the gates of trade would reopen.”
The prime minister consulted the matter with Pulad Chingsang, The Chinese ambassador to Persia (The emperor of China at this time was Kublai Khan). Following this discussion, the prime minister submitted a proposal to the king for the issuing of Chaw.
Without much thought and preparation, a “Yerligh,” or imperial command was issued throughout the country. It abolished transactions of gold or silver coins and declared that Chaw would be the only legal tender in the country and all gold and salver must be paid into Chaw houses or Chaw Khanebs. All goldsmiths had to close their shops immediately.
Moreover, foreign merchants entering the country had to exchange their money on the border to Chaw and when leaving the country could exchange any notes they may have had against gold or silver.
The bank notes themselves were a rectangular piece of paper with various descriptions around them. On the top of the note was the name of God and prophet, or Shahaclatain, as recorded by Vassaf. Under that was the name and title of the emperor. In the center of the note there was a circle with the date of issue and the value of the note, ranging from Dirhain to 10 Dinars. In the lower part of the note there was a warning, which read:
“The king of the world has issued in the date of 693 (1294A.D.) this blessed Chaw, any attempt at counterfeiting will be punishable by death for the counterfeiter and his family and also confiscation of all their property”
The similarity of these notes to existing Chinese notes of that period is amazing! The paper was made from the inner bark of the Mulberry tree, the same whose leaves furnished food for silk works, the popular industry both in Persia and China at that time - The color of the paper was gray and printed in pale black.
It is very interesting that the words Chap (printing) and Chap Khaneh (printing house) that we use today comes from the same word Chaw and Chaw Kbazieh. The “V” has been changed gradually to “I” and because this was the first printing plan people had seen, it is natural that Chap and Chap Khaneh would be used for this industry in the future.
The first note was issued in Tabriz in the month of Shaval 693, or September 1294 AD As Mirkhond and Vassaf stated “Chaw was issued in the month of Zilkadeh,” this is October, 1294.
Extensive research has been done during the last 25 years to find a copy of these notes either in private collections or in museums, but no known specimen of these notes have yet been found.
Tabriz was the head office of the Chaw houses and also the first town to issue Chaw. Other cities which had Chaw khanebs were Iraq Areb, Iraq Ajam, Rabeaeh, Khorasau, Mussel, Miafarcghain, Keruian and Shiraz. Each one had a manager or “Mutasaref’ and a note controller or “Bitekchi” and cashier or “Khazaneh,” each of whom was assigned by the emperor.
We have to remember that 700 years ago, issuing paper money and presenting it to the public, specifically to the financial community, was a revolutionary concept. It needed a comprehensive plan for public awareness for the purpose of preparing ordinary people to accept a piece of paper instead of gold or silver coin.
But it seems this experiment was undertaken in the worst possible way and without much thought to its consequences; they just printed the notes, and merchants and shopkeepers were forced to accept them. Using force had a negative impact among the merchants and created a kind of resistance and distrust, which led them to reject the newly issued notes.
“In 3 days Tabriz was a wilderness and trade was at a standstill and the bazaar was closed.”
People suspected fraud and shopkeepers didn’t like giving merchandise and receiving a piece of paper. Most closed their shops and as a result, even basic foods were in short supply.
The newly issued notes immediately depreciated and fell to one tenth of its gold value.
For example, a horse which was “15 Dinars was sold for 150 Dinars.”
On the Friday following the forced circulation of the notes, the situation was so tense that the prime minister gradually feared a revolt. On the same day in the main mosque in Tabriz people even tried to kill Ezz Edin Mozafar, who was in charge of printing Chaw.
After this incident, the Shah was informed by Sadre Jahan that paper money would cause the total destruction of his empire.
The following day Emperor Kai-Khatu canceled his imperial command and recalled the agents of the Chaw from the provinces.
Merchants and shopkeepers reopened their businesses and trade returned to normal.
Vassaf was relieved to conclude “...Thank God, Chaw was over.”
Of the total amount of paper money issued, we have no information except that the Shiraz branch issued 500, 000 Dinars in notes, and this is an indication that the total number of notes that was issued was sizable. Although the first issuance of paper money created some turmoil in Persia and later China, we should not forget the contribution of these two nations. The fact is that paper money was a revolutionary innovation which changed the whole concept of commerce throughout the world. If, 700 years ago, Iranian shopkeepers did not like this piece of paper as their legal tender, several hundred years later its innovation captured the whole world and today financial institutions could not even imagine the existence of their industry without bank notes.