(52) Introduction of Money Faced Skepticism

By Yang Sung-jin

Korea’s economic policymakers are said to be at odds over how to control the total amount of money in circulation. At issue is whether more money will ease the credit crunch or usher in much-dreaded inflation.

However serious it may be, the worries haunting today’s pundits are nothing compared to those that troubled the Choson officials. Their primary concern was not about controlling the currency; in the earlier Choson period, the nation was yet to introduce a formal, workable currency.

The chief medium of exchange in transactions at the time was cloth. In an attempt to create a national economy, King Taejong wanted to change the system by introducing “chohwa,” a paper money made from the bark of mulberry paper, in 1401. However, the trouble with the new money was greater than expected.

Official Yu Kwan opposed the king’s move in a formal appeal dated April 1401: “Although chohwa can be beneficial to the nation as a whole, it goes against the general principle that we should get permission to print our own money from China. Furthermore, cloth has long been used as a main medium of exchange. The modification of the value of different cloth along with the printing of limited copper coins can back up the overall system.”

But King Taejong was adamant in implementing the new paper money. In order to push through his policy, the king set up a special government agency called Sasomso, which distressed officials who opposed the new money.

On Oct. 21, 1401, the Office of the Inspector-General argued for the abolishment of chohwa and Sasomso: “East Asian nations have not used chohwa so far without any visible inconveniences. Since everybody dislikes using chohwa, the project should be scrapped right away, while dismantling the useless Sasomso.”

Dispute on Chohwa

After receiving the appeal, King Taejong did not express his displeasure, at least initially: “First of all, I’m pleased to know that you have much concerns about the welfare of our people. Given that the paper money will be used exclusively within our territory, I think, there will be no problem with the implementation of our plan without reporting it to China.”

Officials Lee Chi, Chang Ryong and Park Ko responded to the king’s opinion as saying, “The only thing our people think valuable is rice and cloth. Against this backdrop, if the chohwa project is in place, cloth will be prohibited as a medium of formal offerings to the central government in favor of chohwa, a money many people don’t accept as legitimate. Moreover, it will worsen the level of ordinary people’s lives.”

King Taejong said, “I understand you have a point. But once the system settles down, chohwa will work as an effective currency. If any side effect arises from the new money, I will amend it immediately.” Soon after those words, the chohwa was launched.

Two years later, a real problem materialized. According to the report filed by the Office of the Inspector-General, chohwa was allowed to be circulated along with cloth, the traditionally favored medium of exchange. Predictably, people preferred cloth, since the inherent value of cloth was evident in sharp contrast to chohwa, whose monetary value in the market was suspicious at best.

“Recently, the king and officials studied the related records in Chinese dynasties before implementing the law regarding chohwa. But people hardly understand its purpose, complaining that it’s useless compared with rice and cloth, both of which are deemed highly practical in everyday life,” the report said, calling for more stringent applications of the law to help chohwa replace cloth.

In 1410, King Taejong noticed that chohwa was still mired in the deep-rooted prejudice of the public. He suspended the use of chohwa for a period of time and hosted a consultation meeting with high-ranking officials including Lee Ung and Hwang Hee to address the issue.

In the meeting, official Kim Yo-ji said, “Your Majesty reviewed all the related laws and practices in Chinese currency in implementing the circulation of chohwa. If we fail to make people use it now, we won’t be able to do so for ever.”

Prejudice Runs Deeper

Despite the government-initiated efforts to kickstart a new currency, the dispute had gone unresolved until 1424 when King Sejong decided to try a new measure to change the system.

King Sejong ordered officials to build three minting offices in Kyonggi-do, Cholla-do and Kyongsang-do in order to churn out copper coins to help activate the money against cloth and rice.

Court officials strongly opposed the idea, saying that coins are easier to counterfeit compared with chohwa and criminals are likely to destabilize the government-issued coins system.

Yet the chorus of opposition failed to change the king’s determination. On Feb. 25, 1424, King Sejong went ahead with his project.

At the time, the government drew up a plan of collecting 100,000 kwan (a currency unit) but it ended up with only one-tenth of copper needed to print the projected amount of coins.

To secure copper, the government took a variety of measures. All cups made of copper in government-affiliated agencies were conscripted; criminals were allowed to pay only copper as a bail money; shamans should turn in copper to the government as taxes; those found to have melted coins for purposes other than money were severely punished.

From February 1425, copper coins debuted as a currency. Four months later, the government prohibited the bartering of goods in an effort to encourage the use of coins.

On Nov. 1, 1426, officials filed a report to the king, calling for the proper management of the money market: “In principle, the circulation of money should be controlled in order to help the public lead a comfortable life. But these days, government polices failed to function, thus making goods scarce and cheapening the currency. As a result, people are deeply dissatisfied with the devaluated currency.”

Today’s economic policymakers should take note of what the Choson officials termed a worthy principle designed “to help the public lead a comfortable life” in controlling the total amount of money in circulation.