SHANGHAI—Since China was the first country to use paper money it shouldn’t be a surprise that it was also guilty, earlier than most, of monetary recklessness.

When Marco Polo visited China in the 13th century, notes the Cornell economist Eswar Prasad in his coming book “Gaining Currency: the Rise of the Renminbi,” the Venetian adventurer was so impressed by the use of notes, rather than hard cash, he wrote that the Mongol emperor “has a more extensive command of treasure than any other sovereign in the universe.”

Alas,...