From the Two Taxation Laws to Stablecoins: China's Monetary History of Payments, Trade, and Cooperation

Spending weekends at home flipping through books, I came across some materials on the Tang Dynasty’s Two-Taxation System and the history of Chinese currency. These prompted new reflections on the value of digital currencies, represented by stablecoins. I’ve organized these thoughts into a piece for sharing and discussion.

In recent years, the crypto payment industry has been very hot, with concepts like stablecoins, PayFi, on-chain settlement, RWA, AI Agent payments emerging one after another. Many discussions in the industry tend to approach from a technical perspective, such as faster on-chain transfers, lower costs, 24/7 operation, and independence from traditional banking intermediaries. Of course, these are valid, but understanding stablecoins solely from a technical level may not be comprehensive.

What truly warrants questioning is: why, especially today, is the global market increasingly in need of stablecoins? Why, after twenty years of the internet solving information flow issues, does the movement of money still seem so cumbersome? Why is something that appears merely as “on-chain dollar certificates” gradually becoming a fundamental tool in cross-border trade, remote collaboration, crypto transactions, and certain emerging market payments?

If we extend our perspective beyond the present and look back into Chinese monetary history, we find that the evolution of currency has never been purely technological. It’s not just about a genius designing a new tool that society automatically accepts. The real drivers of monetary change are shifts in government finance, trade networks, and large-scale cooperation methods. The smaller a society’s cooperation radius, the less important currency becomes; the larger and more complex the division of labor, the more frequent the transactions, the more it needs a unified, trustworthy, low-friction settlement medium. Historically in China, from the rent and levy system to the Two-Taxation System, from copper coins to iron coins, paper money, and then to silver monetization during the Ming and Qing dynasties, all these changes responded to the same core issue: the old monetary system could no longer support the scale of new cooperation.

1. How does fiscal policy create money?

The early Tang fiscal system was fundamentally based on the Equal-field system and the Rent-Levy system. The state granted land, farmers depended on land for production, and then owed grain, silk, and labor obligations to the state. This system was essentially not monetary finance but physical commodity finance. The main relationship between the state and the people was not “you earn money, I collect taxes,” but “you farm, I collect grain; you have labor, I conscript.” Behind this was a relatively stable, low-mobility, agriculture-centered social structure.

This structure could function only if population and land relations remained relatively stable. But after the Anshi Rebellion, the social foundation of the Tang Dynasty was severely damaged. Population mobility increased, land became more consolidated, and warlord separatism weakened the central government’s control over local resources, causing rapid fiscal pressure.

In 780, Emperor Dezong adopted Yang Yan’s recommendation to implement the Two-Taxation System.

The Two-Taxation System is often simplistically understood as “taxing twice a year in summer and autumn,” but its true significance lies not just in the timing but in a shift in fiscal logic: taxes increasingly based on assets, land, and currency valuation, with the state adopting more unified fiscal rules to replace the previous physical commodity-based system dependent on personal and land control.

The historical significance of the Two-Taxation System becomes especially clear when viewed through the lens of monetary history. Previously, farmers paid in grain and silk, which theoretically did not require deep market engagement. But as tax burdens increasingly needed to be converted into and paid in currency, farmers had to sell their products in the market for money, then use that money to settle with the state. As a result, the fiscal system was not passively adapting to a monetary economy but actively creating demand for money.

Taxation played a crucial role here: it was not just a demand for ordinary transactions but a coercive demand backed by state authority. As long as the state required you to pay taxes in a certain currency, you had to find ways to obtain that currency. Thus, money was no longer just a spontaneous tool for exchange in the market but became a link between the state fiscal system and social economic activities.

This is also very important for understanding today’s currency. Why can modern currency become money? Not just because it’s “easy to use,” nor because paper, digital accounts, or electronic payment systems have intrinsic value.

It’s because the state recognizes it, taxes accept it, and the legal system protects debt relationships denominated in it. These are the fundamental bases of modern monetary credit. After the Two-Taxation System, China’s fiscal policy shifted from physical commodity finance to monetary finance. This was not merely a technical change in taxation but a transformation in governance style. The state no longer aimed to directly seize tangible goods but sought to use the abstract tool of currency to unify and mobilize resources scattered across different regions, industries, and groups.

2. Cooperation drives money

By the Song Dynasty, this logic further expanded. The Song economy was more vibrant than Tang, with larger cities, highly developed handicrafts and commerce, and significantly increased cross-regional trade.

The importance of Song economic history lies not just in its prosperity but in its increasingly evident large-scale cooperation features. As the scale of cooperation expanded, physical exchange quickly became inefficient. You couldn’t use a cartload of grain to buy a small amount of high-value goods far away, nor rely on ad hoc valuation, transportation, and storage for every cross-region transaction.

The true value of money is in compressing complex cooperative relationships into a common unit of valuation and settlement. It reduces transaction costs and trust costs. Thanks to money, a merchant from Hangzhou, a salt merchant from Sichuan, and a military procurement officer from the north could cooperate across different times, places, and credit relationships. The more unified and reliable the currency, the easier social division of labor becomes; the more division of labor deepens, the greater the demand for money.

However, the Song faced a very practical problem: the supply of copper coins could not keep pace with economic expansion. In the metal currency era, money could not be issued at will; copper ore output, minting costs, and transportation capacity all posed constraints. In Sichuan, due to copper shortages, iron coins were used for a long time, but iron coins had low value, were heavy, and costly to transport, making them unsuitable for high-frequency and long-distance transactions.

The emergence of jiaozi (draft notes) should not be understood merely as “the earliest paper money in the world.” Its deeper significance lies in the fact that when metal currency could no longer meet the needs of commercial cooperation, credit money began to appear. The earliest jiaozi can be seen as a kind of exchange voucher, relying on issuer credit and redemption arrangements. But once the market widely accepted such vouchers, they ceased to be mere warehouse receipts and gradually gained circulation capacity.

The value of paper money does not come from the paper itself but from credit, institutions, and consensus. It solves the problems of insufficient metal supply, inconvenient long-distance transportation, and high transaction costs. In other words, paper money was not invented out of thin air but was driven by large-scale commercial cooperation.

Of course, paper money also brought new risks. Metal currency had natural constraints—if copper was insufficient, you couldn’t mint as much; but the issuance of paper money depended on institutional constraints. Printing paper was obviously easier than mining copper, but if fiscal discipline was lacking, paper money could be overissued due to war, fiscal deficits, or political pressure. The rise and fall of Chinese ancient paper money early on revealed core issues of credit currency: on one hand, it could break through metal supply limits and support larger-scale transactions; on the other hand, without credible issuance constraints, it could quickly damage currency trust.

3. Silver becomes a consensus

Looking further into Chinese monetary history, we enter another critical phase: the rise of silver. Why is silver important? Not because it is inherently more “noble” than copper coins, but because China’s cooperation scope further expanded, especially with increased foreign trade and cross-regional settlement needs.

The monetization of silver during the Ming Dynasty was not simply dictated by the state. The formation of silver as the main currency and the influx of foreign silver are widely accepted by scholars; but understanding from the perspective of market origins and global trade expansion is essential, rather than just viewing it as a top-down policy.

Silver was not first designed by the state and then accepted wholesale by society. It gradually gained a foundation in folk markets, regional trade, and foreign commerce, then was absorbed and reinforced by the state fiscal system. Later, the “One Belt, One Road” reform linked silver to taxation, creating a cycle of “market acceptance—state recognition—fiscal reinforcement—trade expansion.”

This is the key to currency becoming a major currency: it must be recognized both by the state and the market. If only the state recognizes it but the market does not use it, the currency remains within administrative boundaries; if only the market uses it but the state does not recognize it, its scale and stability are limited. Silver was able to become an important currency during the Ming and Qing because it met several conditions: high-value settlement needs in the domestic market, acceptance by the tax system, large inflows of silver from foreign trade, and recognition by international merchants. Meanwhile, the public was willing to store wealth in silver.

4. The role of stablecoins

From this perspective, today’s stablecoins are easier to understand. Of course, they have technical advantages, such as fast on-chain transfers, quick settlement, and strong cross-border reach. But these are not the core reasons.

The real significance of stablecoins lies in their becoming a “common settlement medium” in the global digital economy.

Today, the internet makes information cooperation extremely easy. A Chinese team can serve Middle Eastern clients, a Singaporean company can hire Latin American developers, an AI product can call APIs from the US, and work with European clients. But under the traditional banking system, capital flows are still constrained by banking hours, cross-border clearing networks, foreign exchange regimes, account access, and fees. Information has gone global, but value flow has not.

The Bank for International Settlements’ 2026 report on cross-border payment technology points out that cross-border payments, especially remittances and retail transactions, are still more expensive, slower, less accessible, and less transparent than domestic payments. One key constraint is the lack of interoperability between different payment systems. This precisely explains why stablecoins have a market. They are not just a “trend” because crypto enthusiasts like new things, but because the global digital economy needs a more flexible settlement layer than traditional bank accounts.

Of course, stablecoins are not without issues. The BIS’s discussions on stablecoins highlight concerns such as regulatory arbitrage, redemption risks, illegal fund flows, potential impacts on bank deposits and financial stability, etc. If stablecoin payment tracks reduce cross-border friction, they could promote increased capital flows, but regulatory avoidance and financial stability must also be considered. This shows that stablecoins are not inherently “future money.” Like historical paper money, they have the potential to improve cooperation efficiency but also face credit and institutional governance challenges.

From a historical perspective, whether a monetary tool develops depends not just on its risks but on whether it solves real cooperation pain points. Jiaozi had risks but addressed the heaviness of iron money and copper shortages; silver fluctuated but solved cross-regional and foreign trade settlement issues. Today’s stablecoins are similar. Their increasing adoption by users, merchants, and institutions is not because they are perfect but because they are more suitable for large-scale digital cooperation in certain scenarios.

The most comparable aspect between stablecoins and silver is not “they are both valuable,” but “they both gained cross-regional consensus.” Silver was accepted in East Asian trade because different regions, political entities, and merchant groups were willing to recognize it. Today, USDT, USDC, and other stablecoins circulate because they are recognized in crypto trading, cross-border trade, payments in emerging markets, remote work, and digital asset settlement. Even if a Dubai merchant, Southeast Asian developer, Latin American user, and African cross-border trader do not share the same banking system, they might still be willing to settle with stablecoins. This consensus is not written in textbooks but formed through daily transactions.

However, stablecoins and silver also have a key difference. Silver is a precious metal, and its credit partly derives from its physical properties; the credit of USD-backed stablecoins fundamentally comes from the USD system and the issuer’s reserves. In other words, stablecoins are not “pure market currencies” detached from national credit. Quite the opposite, they are largely an extension of USD credit on the blockchain. Historically, the USD gained global influence through bank accounts, SWIFT, dollar clearing systems, and US debt markets; today, USD stablecoins may enter more niche scenarios via wallets, blockchain, and internet platforms. They have both the shell of encryption technology and the core of traditional finance. Because of this, future stablecoin development must inevitably address regulation, reserve transparency, AML, redemption arrangements, and issuer compliance.

5. Industry insights

Returning to the crypto payment industry, we can derive a more straightforward and crucial judgment: the future development of the industry depends not on how novel the concept is but on whether it can serve larger-scale real cooperation. If stablecoins are only used as valuation tools within exchanges, their value is limited to crypto trading markets; if they can enter cross-border trade, digital services, AI payments, remote labor, supply chain settlement, and emerging market payments, they have the potential to become the infrastructure of the next-generation global digital economy.

Historically, the significance of silver was not because people liked silver, but because it supported a larger trade network. The significance of stablecoins is not just that the crypto community has a new tool, but that they might underpin a new mode of global cooperation.

From the Two-Taxation System, Jiaozi, silver, to today’s stablecoins, what we see is a common thread:

• When governance methods change, fiscal systems promote monetization

• When the scope of commerce expands, markets seek more efficient settlement tools

• When cross-regional cooperation further grows, money evolves from local tools to a broader common medium

Today’s crypto payment industry opportunity also follows this thread.

Stablecoins are recognized not just because they are fast but because they respond to real settlement needs in the global digital economy. They are worth paying attention to not because they are inherently the future but because they sit at the intersection of state credit, market consensus, and large-scale cooperation demands.

History does not simply repeat itself, but it often reappears with similar structures.

Only when a monetary tool truly addresses real-world needs can it evolve from an industry tool into the infrastructure of an era.