Paper money originated in China and flourished along the Silk Routes. One of the earliest surviving banknotes was found in the lost city of Kharakhoto (Turkic for “the black city”). Kharakhoto was once a stronghold of the Tangut Empire, before it fell to the armies of Genghis Khan in 1227. The banknote is in two separate pieces now held at the British Library, Or.12380/2286 and Or.12380/2287, and it dates to the period of Mongol rule in the 13th century.
Paper money began in the 9th century when merchants began depositing their money with local banks in return for promissory notes. These notes the passed from hand to hand, used as money in themselves. Once this practice became widespread, successive Chinese rulers first tried to ban or regulate this practice, before the Song Dynasty established a monopoly on printing banknotes in the 11th century. The government monopoly continued under the Mongol rulers of the Yuan dynasty, the era in which the banknote from Kharakhoto was printed.
This particular banknote was printed in the early 1260s, at the beginning of Kublai Khan’s reign. We have Marco Polo’s account from around this time recording his impressions of paper money: these pieces of paper are issued with as much solemnity and authority as if they were of pure gold or silver; on every piece a variety of officials have to write their names and put their seals… Anyone forging it would be punished with death. And the Kaan causes every year to be made such a vast quantity of this money which costs his nothing that it must equal in amount all the treasure in the world.
The Kharakhoto banknote is digitized and available on the IDP website, along with two brief articles. The first, by Beth McKillop, discusses the discovery of the banknote and its context in Chinese history. The second, by John Burton, describes how the banknote was preserved by the British Library's Oriental Collections Conservation Studio.