#3046 - Week 8 Reading The Collapse Of The Chinese Imperial Monetary System - Chinese Economic History Since 1850

“Securing local liquidity during the harvest seasons had been seen as an essential factor for the development of the agrarian empire”

“Local peasant economy’s needs were served by copper cash and silver which served as the main means of settlement for regional and external trade, functioned in tandem with copper, rather independently”

“Successive adoption of the gold or gold exchange standard in India, Japan and the Straits Settlements from the end of the 19^th century to the early 20^th century made it more and more difficult for China to sustain its engagement in international trade and overseas remittances while preserving its own monetary regime”

During Qing, various attempts were made at monetary reform

E.g. during the Civil War that followed the Taiping Rebellion in the 1850s (Zeyi, 1979)

Both the dual denomination copper cash and the official paper money circulated at a large discount and the reform failed

Disappeared in the 1860s as the war ended

The silver liang (or tael) and copper cash formed the basis of the monetary system in the late Qing period

Trading was conducted through the weighing of silver ingots using a measure known as liang

Unit of account consisted of 3 elements

Weight

Purity

A divisor

These elements varied region to region and from commodity to commodity

The value of copper cash was generally fixed and was used as a counting currency

In large transactions, copper cash was put onto strings and large denominations were valued at a premium

But the units of copper cash that made up a string varied by region and commodity

Mexican coins were in circulation for daily transactions

Silver dollars were available only in the southeastern coastal regions and the treaty ports

In other areas they were redeemed as silver ingots and their value calculated on the basis of the liang

Not readily accepted by people in inland rural areas

Other types of dollars such as Japanese were used in other regions such as Fujian province

Paper money was also used

Foreign bank notes generally in circulation in treaty ports

Local market merchants also issued copper cash notes

But circulation was typically limited to a particularly town or county

Can divide the different forms of currency by their usage:

• 1) moneys used for daily transactions

  • copper cash in most regions

  • silver dollar currencies in the southeastern coastal regions

• 2) moneys used for the trading of special commodities and particularly with the export of local products to remote areas of China and foreign countries

• 3) Silver liangs typically used for payment settlement

An official government liang called the Kuping liang was used for collecting land tax

The government issued only copper cash

Which itself was still circulated under the unit of account set by local merchants

Based on agreements made by merchants (i.e. “currency circuit”)

Some merchants issued a copper cash note called a qianpiao

Privately issued for the customers of a particular merchant

But within the region of issuance people would accept and use them regardless of the merchant who issued them

Qianpiao brought elasticity to the supply of metallic copper cash used as payment for peasant crops

Demand for cash by the peasants led to the formation of a currency circuit that maintained the existence of these local notes

With the exception of the use of bills of exchange, people generally used silver the settlement of transactions, although the transported silver was always converted into the native liang

Process of reform can be broken into two stages

Began around 1902

Provincial governments strengthened their control over the circulation of money in response to the possibility that China was drifting towards disintegration

Paper notes were issued by provincial governments

• Gradually took over the sphere dominated previously by the private qianpiao

Officials had proposed the issuance of multidenominational copper cash and the corresponding official paper money on several occasions during the Qing period

• During the early Qing era in the middle of the 17^th and the Civil War period in the middle of the 19^th century

  • Government financial crisis and copper shortages led to the issuance of money of incompatibly high denominations

    • Was seriously discounted then driven out of the market soon after the return to peace

    • Example of supply side factors being responsible for the failure of previous attempts of monetary reform

From the latter half of the 1890s to the early 20^th century, China suffered from a serious shortage of copper cash and sources from this period show that this hampered the purchase of products, such as tea, from peasants (Zhang, 1990)

The government, in issuing large amounts of small denomination cash unlike that of high denomination currencies, brought more financial strains than profits

Changes in the international copper price due to industrial revolution further led to the shortage of copper

Effects of copper shortage felt more in inland areas where they relied more on copper cash for daily transactions

Provincial government of Hubei began to issue a silver dollar backed by the Westernization policy of Zhang Zhitong

• 2 goals:

  • 1) expel foreign silver dollars

  • 2) supplement the circulation of copper cash

    • Failed at this goal and farmers’ choice of money was still copper

Because of the relative inelasticity of the money supply there was a strong connection between a good harvest or large construction project, and the appreciation of copper cash

Printing provincial paper money in place of the copper coin was effective in subduing the increasing demand for copper cash

• Hankou provincial paper money survived in the trading areas around the city until the 2^nd half of the 1920s

  • When a decline of copper currency and revival of private notes grew (Kuroda, 1994)

Zhang Zhitong prohibited counties from using the seal in an effort to extend the provincial paper money’s sphere of circulation beyond county boundaries (Zhang, 1990)

Strong demand pull for currency to pay for peasant produce enabled provincial paper money from Hankou to replace local private copper cash notes

It was not the international copper price movement but the demand for copper to conduct transactions involving rural commodities that caused the appreciation of copper currency in China around the turn of the century

Most provinces issued their own paper money to make seigniorage profits

Started during WW1 (period 1914 to 1927)

Silver dollar began to replace foreign dollars and soon came to prevail

Expansion in the circulation of bank notes compatible with the silver dollar...