#3045 - Week 8 Reading Money And Monetary System In China In 19th - Chinese Economic History Since 1850

Monetary system in China was “chaotic eccentricities” (quoted in Kann)

Was meant to be a bimetallic system

Tiao unit of account varied by regions or commodities

Widespread use of coins of varying qualities or simply private or counterfeited coins intermixed with the standard ones (King)

Value of Spanish silver dollars as a medium of exchange often relied on additional chops by local silver asssayers to authenticate their silver contents

Presence of silver dollars was negligibly in Northern China and the Hinterland

In some ways can be liked to the medieval European system

Multiple currencies and exchange ranges

Multiple jurisdictions and territories

Like Europe before the gold standard

Used of metallic currencies helped solve the “big problem of small change” in China

Silver acted as the medium for large transactions or long-distance trade and copper cash as small change

But this is a useful and misleading analogy

Most distinguishing feature from medieval European system was the influence that politics had in China

Must therefore analyze the Chinese system in political and geographic context

Constant assessment of currency:

Drove up transaction costs

But, acted as a safeguard against possible tempering of currencies which is often associated with the motivation for seigniorage profits

China had previously experimented with paper notes as fiat money:

Song (960-1279AD)

Yuan (1286-1368)

Early Ming (1368-1644)

But always coincided with the end of the dynasty

Was seen as a bad omen (Yang)

Failure reduced a large part of Chinese economy to barter exchange and self-sufficiency

Maybe this was a reason why the Chinese economy was held back?

Therefore the high transaction costs may have been worth the price in the view of the history of low credibility of Chinese empire in managing currencies in large-denomination

Often touted glorious rein of Kangxi and Qianlong

Relative political peace, economic prosperity, population growth, fiscal stability and most importantly “cheap silver”

The problem lie in Beijing’s struggle to ensure a steady and reliable supply of copper cash that would keep the copper cash/silver tael exchange from drifting too far below the ideal of 1000

Traditional view:

Opium imports in early 19^th century were reason for balance of payment deficit and silver outflow from China

Modern view:

Collapse of Spanish American empire around 1820 led to disruptions in supply of silver and high quality silver coins

Trade imbalance within the domestic Chinese regions also created disequilibrium in regional money supply

Taiping rebellion in 1850-60 triggered a major fiscal crisis

Government debasement of copper cash and issuance of inconvertible paper notes to finance the war led to inflation

Implemented debasement in 1853 by the issuance of ‘big cash’, a larger and heavier copper cash

After a few years both ‘big cash’ and government paper notes went into steep discounts

Big cash then traded at value of the intrinsic copper contents

Big cash didn’t reach far beyond Beijing and its neighbouring provinces

Western banks such HSBC and later Japanese banks began to accept deposits and issue bank notes convertible to silver which quickly found favour with the Chinese public in the treaty ports

Maritime Customs helped in the development of Hankwai tael

An abstract unit of silver tael used as the nationwide standard of unit for Customs tax

Sino-Japanese treaty of Shimonoseki in 1896

Qing recognized the need to set up its own modern bank

Leading to the incorporation of the Imperial Bank of China in 1897 (Chen)

Marked beginning of vibrant growth of Chinese modern public and private banks from the beginning of the 20^th century

Political disintegration led to jurisdictional and economic competition

Denzer-Speck referred to this as China’s unique era of free banking

Major attempts by the fiscally-strapped Republican government to manipulate currency to meet fiscal shortfalls

Shanghai branch of Bank of China along with the foreign banks resisted to the orders of the government which led to the weakening of Beijing credibility

The International Settlement area of Shanghai emerged as China’s financial centre

1920s marked the so-called “Golden Age” of Chinese modern banks

An intricate relationship between silver dollars and silver taels formed during this period

Increasingly acted as a form of bank reserves in major banking centres

Competing influence between:

Regional warlords

Treaty port colonial authority

Local commercial and financial organizations

Silver...