On this day December 18, 1271
In the 8th Year of Zhiyuan (1271), Kublai Khan officially declared the creation of the Yuan Dynasty, and proclaimed the capital to be at Dadu “Great Capital”, known as Daidu to the Mongols, at today’s Beijing.
His summer capital was in Shangdu, near what today is Dolonnur. To unify China, Kublai Khan began a massive offensive against the remnants of the Southern Song Dynasty in the 11th year of Zhiyuan (1274), and finally destroyed the Song Dynasty in the 16th year of Zhiyuan (1279), unifying the country at last.
China proper and Mongolia itself were administered in 10 provinces during his reign with a governor and vice-governor each. Aside from the 10 provinces was the Central Region, consisting of much of present-day North China, was considered the most important region of the dynasty and directly governed by the Zhongshusheng “Department of Central Governing” at Dadu.
In addition, Tibet was governed by another top-level administrative department called the Xuanzheng Institute.
He ruled well, promoting economic growth with the rebuilding of the Grand Canal, repairing public buildings, and extending highways. However, Kublai Khan’s domestic policy also included some aspects of the old Mongol living traditions, and as Kublai Khan continued his reign, these traditions would clash more and more frequently with traditional Chinese economic and social culture.
In 1273, He issued a new series of state sponsored bills, which was used throughout the country, although eventually a lack of fiscal discipline and inflation turned this move into an economic disaster in the later course of the dynasty.
It was required to pay only in the form of paper money called Chao. To ensure its use in circles, Kublai’s government confiscated gold and silver from private citizens as well as foreign merchants.
But traders received government-issued notes in exchange. That is why Kublai khan is considered to be the first of fiat money makers. The paper bills made collecting taxes and administering the huge empire much easier while reducing cost of transporting coins.
Later Gaykhatu of the Ilkhanate attempted to adopt the system in Persia and Middle east, which was however a complete failure, and he was assassinated shortly after that.
He encouraged Asian arts and demonstrated religious tolerance, except in regards to Taoism. The empire was visited by several Europeans, notably Marco Polo in the 1270s who may have seen the summer capital Shangdu.