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Chinese Currency And Banking | by Srinivas R. Wagel



This volume is but a sequel to my "Finance in China." In that book I tried to give a bird's-eye view of the whole situation of trade and economics in the country. Owing to the number of subjects that had to be dealt with, the treatment was necessarily brief. The situation in China at the moment is full of interesting possibilities. Reform is in the air, and the necessity for it is being felt more keenly than at any past time. No one interested in this country, in any manner, can escape at least the thought of some scheme, or schemes, tending towards the reformation of China's government and finances.

TitleChinese Currency And Banking
AuthorSrinivas R. Wagel
PublisherNorth-China Daily News & Herald Ltd
Year1915
Copyright1915, Srinivas R. Wagel
AmazonChinese currency and banking
Chinese Currency And Banking

Chinese Currency And Banking

By

Srinivas R. Wagel

Author of Finance in China

Shanghai:

North-China Daily News & Herald Ltd.

1915.

By The Same Author

Finance In China

The Times. - Mr. Wagel's book presents, in effect, a very full and careful survey of the whole field of trade and economics in China.

Investors' Reriew, - Mr. Wagel evidently knows his subject and writes with a trained mind and competent knowledge.

London and China Express. - An excellent survey of the economic conditions in China to-day. The author presents his views in a clear and concise style.

Hongkong Telegraph. - The volume should be in every office in the East and in every library in the West.

Shanghai Times. - One of the best books written on things Chinese for some time.

Shanghai Mercury. - No other book contains the same collection of facts: no other could be named that might in any way take its pace.

N.-C. Daily News. - A conscientious study of problems of general interest and importance - excellent work done by the author in this new field.

-Preface
This volume is but a sequel to my Finance in China. In that book I tried to give a bird's-eye view of the whole situation of trade and economics in the country. Owing to the number of subjects that ...
-Chapter I. Introduction
The fundamental defect of all schemes so far proposed for the reformation of Chinese finance is that, while many of them are quite good in their own way, they are woefully lacking in the correct persp...
-Introduction. Part 2
The fundamental of all progress and reform is character, individual and national. Whenever any reform is proposed it is assumed, as a matter of course, that the proposal is favoured by the inhabitants...
-Introduction. Part 3
Even in countries like England, Germany or the United States which have a complicated network of railways, which connect every port with the inland cities and such cities again with small towns - and ...
-Introduction. Part 4
Another important reform is that relating to irrigation and conservancy. For centuries this country has been suffering from the wayward courses of its rivers. The Yellow River, which is aptly known as...
-Chapter II. Finance And Money
As one of the first premiers of the Republic said, finance in this country is an all-important and an all-absorbing subject, overshadowing everything else. Even in countries which have a well organize...
-Finance And Money. Part 2
We have been accustomed to speak of the government receiving taxation in money, man making profit in business in money, or an agriculturer selling his produce for a certain amount. By common custom an...
-Finance And Money. Part 3
Money or the medium of exchange has not always been gold or silver, nor even always metals. Only two hundred years ago in China pieces of silk had the same value as money. About three hundred years ag...
-Finance And Money. Part 4
The progress of mankind would have been seriously limited if trade had been confined to barter; as I have shown above, even in the very early stages of civilization, a medium of exchange was found to ...
-Standards
For a long period anterior to the reign of Darius the ratio of the value of gold and silver was maintained at 13-1/3 to 1. For a hundred and fifty years after the return of Julius Caesar from Gaul it ...
-Chapter III. Currency In China
My purpose in giving a resume of the process by which gold and silver came to be used as the mediums of currency in other parts of the world is to enable my readers to grasp the significance of the hi...
-No Profit From Coinage
Up to the close of the eighth century the policy of the Government in China was regulated by the principle that coinage was for the convenience of trade and, incidentally, one of the means of enrichin...
-Counterfeiting An Old Practice
With the coming into power of the Tang dynasty at the close of a long period of civil warfare there was perceptible progress in trade - mainly due to the attempt at standardizing currency during their...
-Silver And Copper Standards
It is difficult to designate the position of currency in China at any period, under any of the heads known to experts of currency. At no time was there anything corresponding to a system. Especially a...
-The Cash
Although it was originally intended that cash should be in pure copper, in actual practice the coin was of bronze, i.e., a mixture of copper and spelter or zinc. It is useless to attempt to give the s...
-Silver As Standard
Even to-day, although there is a sort of silver currency, cash or copper coins almost rule the roost. The history of the introduction of silver as currency in China is given in my book Finance In Chi...
-Silver And Gold
It so happens that, ever since the balance of trade of this country grew to be increasingly against it, the Government had begun to borrow large sums. Of course, the total of Govrenment borrowings is ...
-The Tael A Weight
Statistics show that on an average, during the past forty years, about l,500,000 a year has been sent out in gold while about 3,000,000 has been received in silver. There have been exceptions to the...
-No Uniformity
The exigencies of the situation in China proved of no help towards the maintenance of a uniform currency. Apart from the fact that the people were by nature and training a race intensely fond of specu...
-Coinage Of Silver
Attempts were made from time to time to surpress the circulation of foreign coins as well as the importation of opium, shortly before the the war, misnamed the Opium War. In 1836 the provincial treasu...
-First Modern Mint
The first attempt to establish a mint with proper organization and machinery was made at Canton in 1887, although it was not intended to be a part of a national currency system. The Canton mint was pu...
-The Canton Mint
Chang sent in a memorial to that effect, which was, however, referred to the Board of Revenue. Although he failed in his effort to introduce a national currency, he managed to procure a provincial sil...
-A Plethora Of Mints
Ever since the Taiping Rebellion the finances of this country were known to have been precarious; and the provinces took favourably to any means of enhancing revenue, whether such proved eventually go...
-Copper Coinage
If the depreciation of the silver subsidiary coinage was the only evil arising out of the establishment of provincial mints the situation need not have caused anxiety. But the currency situation has b...
-Paper Money
No discussion of the currency in this country should be complete without a proper enquiry into the history of paper money in China. The earliest period in which paper is known to have been issued is i...
-Skin Currency
For over a hundred years after a suppression of the 'flying money' there was no other medium of exchange, apart from commodities, but copper coins. Before proceeding further, I must refer to a curious...
-Sung Notes
The next occasion on which paper began to have currency value was in 960 a.d. - when the Sung dynasty was first established. At first merchants were allowed to pay sums into the Government Treasury at...
-Szechuan Paper
China, or even the whole world, is indebted to Szechuan for the introduction of paper money, in the manner it is known to-day. Szechuan is far removed from the coast and is the western-most province. ...
-Frontier Bills And Hui-Tze
From the reign of the Kao-Tsung in 1130 a.d. till the conquest of the whole country by the Mongols, China was divided into two halves - the Sung dynasty holding the Southern part and the Chin Tartars ...
-The Chin Notes
Contemporaneous with the Southern Sungs, the Chin Tartars ruled Northern China. So far as the issue of paper money was concerned they followed the Sungs - both of them running a mad race in the issue ...
-Mongol Notes
When the whole of China was conquered by the Mongols - the conquest having been completed in 1279 - when the Mongols ruled under the new dynasty called the Yuan, they repudiated both the Ch'ao of the ...
-Ming Notes
The main cause of the fall of the Mongol dynasty was the havoc caused by the irredeemable and depreciated currency, apart from the burden of heavy taxation. The first Ming Emperor who, as Hung Wu, was...
-Paper Money Under Manchus
The Mings gave way to the Manchus, who reigned from 1644 up to 1911. In the reign of the first Emperor, Shun Chin, the finances of the country were extremely bad and the new Government had to adopt me...
-Chapter IV. Early Currency Reform
Beginning from the reign of Tung Chin the condition of currency in China grew to be more complicated than it had ever been. All the backwash of the previous dynasties collected together in the reign o...
-The New Paper
But the most serious aspect of the position of currency during the latter years of the Manchu rule was that relating to the issue of paper money, especially during the last fifty years - mostly by the...
-First Proposals
The suggestions made at that time were just like others made at other periods; they were in the nature of broad generalizations, and proposals were neither consistent with the existing state of affair...
-Mr. Sheng's Scheme
The first comprehensive programme of reform was proposed by Sheng Hsuan-huai, or better known as Sheng Kung-pao, then junior secretary in the Foreign Office. Mr. Sheng has shown himself to be a constr...
-Attempt At Regulation
A well intentioned edict was issued after the return of the Empress Dowager from Jehol in August 1901. It ordered the closing of the provincial mints, excepting those at Canton and Wuchang, and legali...
-Fresh Copper Issues
While the Government was trying to restrict the operation of the several mints, it was confronted by a further difficulty on account of insufficiency of copper coins; the relation between silver and c...
-Foreign Influence In Favour Of Reform
The growth of foreign commerce and increase of China's international obligations changed the whole aspect of affairs with regard to reform and emphasised the urgency of currency reform. The nations ha...
-The Fall In Silver
The general situation with regard to silver was such at the time as to lead to grave concern about the future, especially in the countries which were on a silver basis. The question of the relative va...
-A Silver Commission
When all countries were adopting the gold standard, when even Siam, by a royal decree issued on November 25, 1902, adopted a gold exchange standard, the only two countries that remained silver standar...
-A New Proposal
In the interim Hu Wei-te, Chinese Minister at St. Petersburg, sent in a memorial to the Throne favouring the adoption of a gold standard with the incidental gold reserve. The following extracts from H...
-Hu Wei-Te's Scheme
After enumerating thus the advantages of the gold standard, Mr. Hu proposed that the coinage unit should be called yuan instead of the tael, with the weight of 27.072 grammes and 920 fine. Under suc...
-The American Commission's Report
Early in 1904 Professor Jenks, of the American Commission, presented his proposals to the Chinese Government. The unit was to be a definite value in gold although, however, there was to be no coin of ...
-Mr. Jenks' Scheme
Mr. Jenks met the argument that silver should continue the standard for a while by the statement that during the interim, before the national currency was put on the gold basis, there would be a great...
-Chang's Opposition
Although the advantages of the gold standard system were enumerated in detail by Professor Jenks, as also the method by which introduction of the new system was to be facilitated, the authorities were...
-Chang's Arguments For Silver
Many of the arguments which Viceroy Chang advanced against the adoption of the gold standard were unsound from a purely theoretical standpoint. Like many other Chinese statesmen he had neither the exp...
-New Copper Coinage
In the meanwhile, currency conditions, as the result of the addition of the new copper coins, were steadily growing from bad to worse. As it was easy to counterfeit the old cash, and as the country wa...
-Regulations For Coinage
If the Government was wise and if the statesmen at Peking were properly advised they would have put an end to further coinage of the ten-cash pieces altogether; unfortunately the ministers listened to...
-The Kup'Ing Tael As The Unit
The proposal came to naught as the Government was not prepared to accept the gold standard and the Board was guided largely by the strong expressions of opinions of Chang Chih-tung, and Yuan Shih-kai,...
-Why Reform Was Shelved
There were other reasons for the importance of the early reform of currency not being apparent to the Government. Owing to the adventitious causes, mainly due to the large purchase of silver for coina...
-Gold Exchange Standard
As a matter of fact a sort of a gold exchange standard already found favour with the Board of Finance in 1906; and the Board proposed to introduce new national silver coins on the silver basis to repl...
-Output Of Copper Coins
In the meanwhile the position of copper was in no way improving. By an edict issued on December 7, 1905, the operation of the copper mints was suspended for three months, but very soon minting was res...
-The Dollar As The Unit
In 1910, however, a proper act to deal with currency was issued, Imperial sanction having been given to it in May 24 of the same year. Under this act the unit was to be the dollar and the coinage was ...
-Retirement Of Old Coins
The question now was, how to retire the old silver and copper coins that were then circulating. The total output of silver dollars from the provincial mints was estimated at $40,000,000 and the number...
-Chapter V. Later Currency Developments
Early in 1911 Tang Shao-yi resigned the presidency of the Board of Communications and Sheng Hsuan-huai, more familiar known as Sheng Kung-pao, was appointed in his stead. With the advent of Sheng ther...
-No Stoppage In Coinage
At no period since the commencement of work at the provincial mints, until the latter half of 1914, had coinage been stopped, of either silver or copper. Even during 1911, the year of the Revolution, ...
-Dr. Chang's Scheme
Under the terms of the loan of 1911 Dr. G. Vissering, at one time president of the Java Bank, was appointed monetary advisor to the Chinese Government in the month of October; owing to the fact that a...
-Dr. Vissering's Scheme
The next important scheme and one which appears to have attracted a fairly large amount of attention at one time at the hands of the Chinese authorities is that of Dr. Vissering. In his memorandum On...
-Dr. Vissering's Scheme. Part 2
Dr. Vissering and his collaborator are experts in the theory and laws of banking and currency; but most of their practical illustrations are taken from the position and developments in the Netherland ...
-Dr. Vissering's Scheme. Part 3
Dr. Vissering begins by proposing an adoption of what he calls a bank unit or a theoretical unit with a fixed gold value. A fictitious unit is not new to the history of currency; at present the yen ...
-Dr. Vissering's Scheme. Part 4
After a careful examination of the currency systems of the countries of the Far East Dr. Vissering claims that the yuan with subdivisions down to its thousandth part, which was adopted by the Imperial...
-Chapter VI. Banking In China
The history of banking in this country is lost in the mist of obscurity of the past. The system of banking is very ancient; the use of bills of exchange is as old as the art of printing in China and t...
-Early Banking
So far as could be ascertained, banking operations were carried on in this country on a large scale, principally by the Government, ever since the ninth century a.d. Ma Tuan-lin, the historian of Chin...
-Government As Bankers
I have already mentioned the causes that led to the issue of paper money in Szechuan; also that at one time this paper money was dishonoured in the same province. After a great deal of discussion it w...
-Banking And Taxation
Banking in the early reigns of the Sung Dynasty has been more or less connected with taxation. There was always trouble on account of the merchants trying to collect taxes and the Government trying to...
-Government Money Lending
In the year 1078 Emperor Shen Tsung issued an edict to lend money and grain to farmers who were poor, in order to help them restore irrigation canals needed for agriculture. The money was taken out of...
-Banking And Currency
It is thus evident that practically all the banking business done in China up to the twelfth century was undertaken by government. I mentioned already that under the Tang Dynasty the Government did no...
-Despatch Of Money
Up to the close of the seventeenth century, when China was more or less self-contained, banking was necessarily restricted in its scope. Owing to the situation arising out of the chaos of currency, a ...
-Shansi Banks
The history of the Shansi banks, which continued to do business even as late as 1911, is almost a romance. These bankers made their fortunes in salt and iron, both of which valuable products were bein...
-Government And Shansi Banks
The modus operandi of the Shansi banks is very interesting and deserves a detailed description, especially as it was far in advance of the methods employed in Europe, even as late as the seventeenth c...
-Shansi Banks And Native Banks
Until the advent of foreign commerce the Shansi bankers performed most of the functions of the Government treasury besides facilitating the commerce of their own province in salt, iron and silk. When ...
-Banking And Money
The different classes of banks that have been in existence during the past fifty years have been described in my Finance in China. The most interesting and wide-spread are what are generally known a...
-Banking And Exchange
It thus happened, therefore, that the primary business of native banks resolved itself into one of money changing. There was, of course, the usual banking business of loans, deposits and bills, etc.; ...
-Methods Of Exchange
What were the processes involved in the dispatch of money from Canton to the interior, or from the interior places to Canton Let me take, for example, a single transaction each way. Supposing, for exa...
-Foreign Trade And Native Banking
Before the advent of foreign commerce in China, the Shansi banks did this kind of business even without the intervention of native banks; but they gradually withdrew from having direct business relati...
-Provincial Government Banks
The monies of the Governments while generally kept with the Shansi banks were also lent out to the native banks. The profits mostly went to the provincial officials, and in very few cases to the provi...
-Issue Of Banknotes
These so-called official or provincial banks never inspired any great respect among the Chinese. At first, of course, they cut into the business of the regular native and Shansi banks. The native bank...
-Business Of Official Banks
Almost every province had an official bank or more commonly called a provincial Government bank. These banks were supposed to receive the revenues collected within the province and make arrangements f...
-Misconceptions About Paper Money
To such of my readers as are trained on the principles of Western economics and others who are not fully acquainted with the economic situation in this country, a statement like the above would appear...
-Banknotes Considered Means To Raise Capital
The inevitable corollary to such belief was the free issue of notes by all banks. They reasoned as under: When we could get money without having to pay interest, why should we invest our own capital ...
-Influence On Business
The circulation of the bank-notes in China is particularly interesting and has exercised a great deal of influence on foreign commerce. While those in charge of the banks issued paper with a view to o...
-Over-Trading In Imports
Such a state of affairs could certainly not continue; and the several processes through which the system of banking had to pass before the final breakdown in 1911 are worth careful study. I will refer...
-Government And Paper Money
The circulation of the notes was possible also because of the fact that the Central Government acknowledged it as money for a very short while. Especially during the last twenty years of the Manchu ru...
-Provincial Contributions In Paper
It should have been the duty of a well organized Government to have put an end to these kinds of issues, knowing what they were and what they meant for the future. The Manchu Government was both unwil...
-The Methods Of The Banks
When the Central Government, the provincial Governments and merchants in all parts of the country accepted paper as money, there was nothing to prevent the free circulation of every note put into circ...
-The Native Banks
The most ancient and the most important of banking institutions in this country is the regularly constituted native bank. The whole progress of foreign trade is centred round the native bank; and this...
-Native Banks Introduced Foreign Coins
In the early days of the existence of the native banks they served more the purpose of exchange shops than that of regular banking. As even until the early decades of the eighteenth century commoditie...
-Increase Of Native Banks
When other ports besides Canton were opened to foreign trade the number and function of Chinese banks increased. In Canton the hong merchants were given the privilege of trading with foreigners by the...
-The "Native Order"
These banks have played an all-important part in the progress of foreign trade; as a matter of fact but for their activity, in not a few cases extremely unwise and unhealthy, the total of foreign trad...
-Changes In "Native Orders"
I have endeavoured to describe the origin as also the principle of native orders. But the whole business has gone through various modifications, so much so that a native order in the modern days has a...
-Formation And Capital Of Native Banks
The working of the native banks was influenced considerably by the constitution or the method of their formation and the principles on which they had to be worked. Even to-day the Chinese have not gra...
-Working Of Native Banks
The business of a foreign bank is dependent more upon its reserves and deposits than upon the amount of its capital. As a matter of fact, except in the first few years of the existence of a foreign ba...
-Working Capital
Besides the capital, these banks have few other resources to fall back upon by means of which they could prosecute a large volume of business. Excepting foreign exchange, the native banks do practical...
-Chop Loans
All foreign business was done exclusively through foreign banks, and a large amount of Chinese money also found its way into their coffers - mainly from the point of view of safety and security. At an...
-Banking And Trade
The purpose of banking and the aid it renders to trade is probably the same in this country as in any other part of the world, where there is an elaborate system of banking. But there is a fundamental...
-Cheques And Native Orders
Later on, however, especially during the last three decades, the native banks did what they certainly would have preferred not to do, if they could have helped it; they themselves plunged directly int...
-How Native Orders Were Abused
At one time the native order had an extremely high value and it was generally accepted that all orders were quite as good as money. The principal reason of the degeneration of these orders was the ent...
-Overtrading And Banking
If there was room for the marketing of all the goods that came into the country, in an easy manner, it is possible that this new development in banking and, trade might not have worked any harm. Unfor...
-Banks As Merchants
It is, therefore, evident that the banks began to do the regular business of buying and selling commodities through sheer force of circumstances. Such a course is followed also by modern European bank...
-Fixing The Responsibility
Although the dealer that bought the cargo from the foreign merchant was responsible for the honouring of the native orders, the latter turned to him only when the banks did not pay. Naturally the firs...
-Further Complications
Even then the native banks had not begun to trade. They were simply pressing the dealers to sell as much as they could and return the amounts due to the banks. What with the fall in exchange, the heav...
-Dealers Become Middlemen
From every point of view the situation was serious for Chinese banking, and it was generally felt that something must be done to avert the crisis. However complex the interests of individual bankers m...
-Russo-Japanese War And Banking
This state of affairs continued for only a very short while, i.e., from about 1905, when there was a boom in imports at the close of the Russo-Japanese War, till 1911, when the revolution brought abou...
-Banking And Paper Money
At about this time the official banks, to which I have already made lengthy reference, were throwing out large quantities of paper money. They were glad to take hold of every opportunity to put their ...
-Banking And The Rubber Boom
For about four years before the final debacle of 1911 native banking was in a most precarious position. Most of the banks were unaware which day would be their last. They were using makeshifts by sell...
-The Revolution And Banking
The crisis in native banking was brought about very suddenly by the revolution of 1911, which converted the Middle Kingdom from a hoary empire into a new-fangled Republic. Even in the ports where pape...
-Banking After 1911
After all, the revolution was of great benefit to native banking in that it stopped altogether private issues of bank-notes, besides the trading of the banks in commodities. The banks that survived th...
-Chapter VII. The Standard Of Value
The comprehensive summary of the position and development of currency and banking in China which I have made, is, I believe, sufficient to form an adequate groundwork of constructive reform. The sever...
-The Battle Of Standards
The question that has been discussed for nearly thirty years and on which there seems to be no unanimity of opinion, is: what standard shall China adopt? The consensus of foreign opinion has been in f...
-Gold And Silver
Before proceeding with the discussion of this question it is necessary to preface my remarks with a brief history of the use of gold and silver as currency. All records point to the fact that in the d...
-Currency In England
During all this period there were frequent and constant supplies of silver, just as the process of coinage was attaining perfection. Currency, prices and coinage were in the same jumble in England eve...
-Change To Gold
The principal currency of England got on a gold basis, mainly because of the over-valuation of the guinea. Even as late as 1870 gold and silver were maintained at almost the same relative value in the...
-Prices And Gold
During this period there was a large and general fall in the gold price of commodities accompanied by great economic depression. Sir Robert Giffen (then Mr. Giffen) stated in January, 1879 that the fa...
-Why Gold Became The Standard
The causes that contributed to the enthronement of gold were many. Especially in the latter half of the nineteenth century, the application of science to modern industries was being perfected. The int...
-Why Gold Became The Standard. Continued
Meanwhile the general advance in the trade of the world tended to be all in favour of gold. Every elementary manual of economics would show the advantage of gold as a standard. But what changed the wh...
-The Standard For India
The situation in the Western world had been settled satisfactorily to the advocates of the gold standard. But the position in India and the East was becoming rather serious. The Indian exchange was be...
-Gold Exchange Standard Adopted
The Government of India, as Sir David Barbour already stated, were not quite sure of their ground and were certainly unwilling to take the decisive step toward the adoption of gold. In October 1892, t...
-Indian Currency Reform Not Planned
So far as the reform of Indian currency was concerned no deliberate plan was followed and the changes that have taken place or even the fact that the gold exchange standard was allowed to develop was ...
-Other Countries Follow India
Since the Indian system has been perfected it has been widely imitated both in Asia and elsewhere. In 1903 the United States introduced a system, which is practically a replica of the Indian system, i...
-Reform In Dutch East Indies
First period: Before 1845; Great confusion in the currency, chiefly owing to a very serious redundancy of copper coins. In conformity with Gresham's law all the silver had disappeared. The copper cur...
-Chapter VIII. The Bases Of Currency
The exact position of the currency in this country has been treated in detail in the earlier chapters of this book. At present, I purposely refrain from making in detail any remarks on currency in rel...
-The Basis Of Reform
It is tacitly agreed by all parties that the currency situation in this country needs a change and an urgent change. For all proposals tending towards a betterment of conditions, the examples are take...
-Conditions In Europe And China
The final decision on the standard to be adopted is the fundamental of all reform in currency. Hence it is very necessary to go fully into the points of difference between other countries of the world...
-Currency And Money
The question, what is money, has never been satisfactorily answered. Mr. Mitchell Innes states that there never was until quite modern days any fixed ratio between the monetary unit and any metal; in ...
-The Faults Of Reform Schemes
In economics or politics or in any walk of life, the principle that should not be lost sight of is, that reforms should be built on sure foundations as also that they should take proper note of the ex...
-Influence Of Metallic Money
Another shortcoming of practically every scheme that has been proposed in recent times is that little attention has been paid to the regulation of currency, as it affects local exchanges. No doubt for...
-Conditions In India, Etc
It needs no special arguments to prove that such proposals were bound to fail. As in every other country in the world, where currency has been properly regulated - at least as far as present condition...
-Bi-Metallism
What are the standards that could possibly be adopted ? At this stage it is absolutely useless to think of bi-metallism - although it would suit China extremely well; practically every country that Ch...
-Gold Standard
It is argued that as every country has adopted gold as a standard China should simply do the same. The advantages of the gold standard are stated to be: stability of prices for commodities at home; ex...
-Gold Exchange Standard Adoption
The next possible scheme is the adoption of the gold exchange standard which has been adopted in India, Java, Strait Settlements and the Philippines, and which was in force in Siam and Japan before th...
-Gold Exchange Standard. Continued
Let us consider the position in China. There is no existing coin that is accepted in every part of China or that has a fixed relation to the subsidiary coins. The Mexican dollar has, as a coin, a larg...
-Chapter IX. The Silver Standard
To those who have long been accustomed to think in gold and who have constantly believed what is good for Europe must be good for any other part of the world, the step I now propose may appear retrogr...
-China Must Begin With Silver
It is evident, therefore, that the best plan for China would be to work with the material available and perfect whatever system she has, in consonance with the established traditions. Although she mig...
-Depreciation In Values
It may rightly be asked how such results could be obtained by having silver as the standard. It may further be argued, that the tendency of silver is to depreciate in terms of gold, and China sticking...
-Uncertainties Of Exchange
The argument that the retention of the silver standard would mean the continuance of the present state of uncertainties in exchange is worth serious consideration. It is certainly a fact that the unce...
-Importance Of Metallic Currency
The essential of any reform in the direction of changing the standard to gold or gold exchange is the introduction of token coins and notes. The advocates of such a change admit the difficulty of the ...
-Unification Of Local Currencies
The question of the utmost and urgent importance for China is the unification of the several local currencies. It cannot but prove to be a task of extreme difficulty and one requiring a liberal exerci...
-Silver Values
The value of silver varies from day to day and some times from hour to hour, in terms of gold; and the argument against silver will be that, if the silver standard is continued, there will still remai...
-Gold Or Silver
There are several fallacies inherent in the time-honoured argument that gold does not change while silver fluctuates violently. Gold is as much a commodity as silver, wheat, cotton or sugar. Through a...
-Economic Forces Determine Values
Gold has become the standard of convenience in the Western World; and it happens that Europe has a great influence in the shaping of the destines of the East, including China. It is being flippantly a...
-Currency And Prices
I have shown already that the gold standard would be disastrous to China as well as foreign interests in China; the latter would be affected badly by the economic disturbance that Would result from th...
-Variation In Silver Values
An objection to the silver standard which seems almost insurmountable to some is the constant variation in the value of silver. It is well known that every transaction in the trade of China to-day mea...
-Why Silver Depreciated
It is unnecessary to go into the causes of the fall in the value of silver. For several centuries prior to 1870 silver stood more or less in the ratio of 15 1/2 to 1 compared with gold - although at o...
-China To Be The Steadying Force
I do not want it to be understood that I am putting in any special plea for silver. As my readers might have noticed already, I have started on the basis that as the wealth of China lies in silver and...
-Standard And Credit
The metal which constitutes the standard is of less importance to-day than it was in 1870; because during these years an enormous superstructure of credit has been built upon a very small supply of ac...
-Silver Necessary
Three-quarters of the production of silver to-day is absorbed in the arts and the balance is used for coinage. As, year after year, more countries have been going in for gold the amount needed for coi...
-Prouction Of Silver
It may be argued that this would lead to a free and larger production of silver, which is certainly not wanted in the present circumstances. It is a statement of fact that, since 1890, when silver pri...
-Chapter X. First Steps In Reform
For several centuries China has been accustomed to use silver at its intrinsic value; in many parts of the country - as a matter of fact, more than three-quarters of the area in China - even silver is...
-Silver And Copper
The question that confronts any proposal for reform is to fix the ratio between silver and copper. It must be understood that even trade transactions away from the ports are conducted mainly in cash, ...
-The First Step
Many of these difficulties incident on adopting gold could be avoided by starting on a real silver basis; the silver money in circulation will then always be worth its intrinsic value, unless popular ...
-Token Copper Coins
But that does not settle the position of the copper coins. Modern conditions preclude the possibility of having a circulation of copper coins at their intrinsic value. The position is that it is unavo...
-Regulation Of Copper Currency
As there is no insuperable difficulty whatsoever as regards the acceptance of copper coins by the Chinese as tokens pure and simple, the only thing that remains for the Government to do is to regulate...
-Copper Coins Foundation Of Reform
I am firmly convinced that the cash should be the foundation of currency reform. So far reformers have taken too little stock of the power of the cash; they have begun with the tael or dollar as the c...
-The Cash And The Tael
The best scheme, therefore, is to start with the cash which has been the standard in China for tens of centuries and build upwards. The Chinese people themselves would be ready to admit that as a stan...
-Objects Of Reform
The ultimate objects, which a present monetary reform ought to have in view, are a fixed currency with a stable value tending to a certain amount of fixity in prices; (2) preventing the undue fluctuat...
-Tradition And Currency
Therefore, care should be taken that there is no violent change in the existing situation. Even Dr. Vissering, who advocates the immediate adoption of a gold exchange standard, with a view to the fina...
-Use Of Coins
The statement that the people should get accustomed to the use of coins has a certain modicum of truth in it, although any project making a silver standard coin worth more than its intrinsic value is ...
-The Second Step
Hence the scheme best adapted to the needs of the present situation is the retention of the silver standard, with the copper cash as the basis and the silver tael as the unit or the standard. I have a...
-The Tael, Unit Of Standard
When we know the reasons why no coin so far issued has proved really acceptable, it would be easy to formulate a scheme that would be readily acceptable to the country. The several kinds of foreign an...
-Control Of Minting
An important point which ought to be noted with regard to the reluctance of China to accept any silver coin is the belief that coinage always implies a loss in the purity of silver. Such a fear has be...
-Bases Of The Standard
Therefore, in order that currency reform might prove successful, the following points should be kept in mind: - That on no account, for the present, would the Chinese admit silver to have a value abov...
-The Possible Standards
The question to decide next is: What is the standard, satisfying the conditions that I have already enumerated? The only three monies of account in China that can claim to be accepted as the standard ...
-The Shanghai Tael, The Best Standard
It would seem, therefore, that so far as regulation of internal currency is concerned the adoption of the Shanghai tael as the standard should prove the best possible solution of the present difficult...
-Advantages Of The Shanghai Tael
As to its effect on foreign trade, it may confidently be stated that any step tending towards uniformity of the standard of value would help to increase the foreign trade - irrespective of the variati...
-A Steadying Influence
How then, it may be asked, would such a steadying influence be brought about? Ever since the demonetization of silver by European countries, up to 1892, when the free coinage of silver by the Indian m...
-Effect On Silver Production
So far I have not taken into consideration the production of silver and the effects of demand or want of demand on its value. Production will follow demand because unlike gold, whose increased or decr...
-Effect On China's Indebtedness
The last point for consideration is the effect on the national indebtedness. It is a truism that the indebtedness of China to foreign countries is fairly heavy and the uncertainty of exchange makes an...
-Chapter XI. Banking Reform
Although I have endeavoured to separate currency and banking as much as possible and to deal with each subject on its own merits, it is not humanly possible to dissociate one from the other. The chann...
-Purpose Of Banks
It is not to be understood, of course, that the purpose of banks is just to minimise the use of money; the real object of banks is to facilitate trade or exchange of commodities. Experience has shown ...
-Banks Introduce Currency
Exactly as in the case of any commodities or manufactured articles, money has to be put into circulation through some medium or other. The medium by which money is sent out by the government to the pu...
-Banks In China And Currency
I have given an account of the system of banking as it prevails in China to-day, with brief references to its development since the earliest times. One who has the slightest experience of the progress...
-Banks Must Be Public Institutions
The question before .the Government and Chinese financiers to-day is how to make the banks really public institutions. So long as the best of the native banks continue to be proprietary and refrain fr...
-Banks And Paper Money
Now we should start on a different basis. The important step in reform, as I have mentioned in the previous chapter, would be the adoption of the Shanghai tael as the standard with the necessary stand...
-Government Must Control Banking
The question is: How could the Government exercise such a control? The first article of the draft of statutes of general regulations for the Central Bank of China issued in 1912 explains clearly what ...
-State Banks
The question, therefore, resolves itself into one of having a state bank or a private bank to help the treasury to control and regulate adequately both currency and banking. Dr. Vissering in his able ...
-Quasi-Government Banks
The central banks of England, France and Germany, not to speak of. smaller institutions, have all been quasi-Government institutions. Even as late as 1854 the banks of Spain, Portugual, England, Swede...
-Privilege Of Issuing Notes
Two kinds of money are in circulation in modern civilized countries; one is metallic money, the privilege of issue of which rests entirely with the Government; and the other, the paper money based on ...
-Who Should Issue Paper
The questions which China has to decide in connection with banking reform are: first, whether the Government should have the exclusive right of issuing paper money as is the case in India or whether t...
-One Bank or Many?
There is no better plan to arrive at a decision on this point than to compare conditions in China with those of other countries. A noteworthy feature in countries which have a central quasi-Government...
-Comparison With The United States
But not all countries have central banks. Siam has no central bank, the treasury regulating currency with the aid of the branches of foreign banks in Bangkok. The United States and India ought to be g...
-Comparison With India
India has also many points in common with China. The same extent of territory as also dependence upon foreign countries for manufactured goods, apart from the level of wages and prices, make India eve...
-Many Banks Necessary
As it is recognized that the treasury in China, for a long while to come, should exercise a much greater measure of control over trade and banking than is possible or necessary in advanced countries l...
-Chapter XII. The District Banks
Now that it is seen that a Central Bank, as proposed by Dr. Vissering, is quite unsuitable to China, it is necessary to know how the rearrangements of the banking system could be made. Dr. Vissering c...
-Purely Trade Districts
In what manner these functions could be easily and successfully performed is the problem now before us. As I have pointed out, already, there has really been no parallel situation in any country in th...
-Co-Operation Of Native Banks
I have repeated rather monotonously that any reform in this country should not only conform to old traditions but also take stock of existing institutions. All the proposals for banking reform that ha...
-Bank Of China Unsuitable
By recent legislation the Bank of China has been made into a sort of a central bank and elaborate rules and regulations have been made to justify such pretensions. First of all, I wish to point out th...
-Foreign Banks Should Not Be Ignored
The Chinese Government should not forget the fact of the existence of powerful foreign banks. For instance, Section 1 of Article 42 of the Statutes or the rules of the Central Bank of China, states: ...
-Working Of The District Banks
The working of the District Banks should be so regulated as to bring about a maximum of efficiency with as little disturbance of existing trade conditions as possible. For this purpose, no more useful...
-Necessary Restrictions
The first and most important point that I would impress upon the authorities and the new banks is that on no occasion should any Chinese institution dabble in exchange, at least for the present. Two o...
-District Bank, Aid To Currency
Before proceeding further with the details of the constitution and functions of the district banks, some general observations are necessary in order to make my position clear to my readers. The essent...
-Advantages Of This Scheme
Just as my currency proposal takes as a nucleus the existing cash and Shanghai tael for building up a constructive programme, so my banking proposal takes the existing native banks as the nucleus for ...
-Help To Government
The special advantage of the district banks under my proposal is that they would act very successfuly as the collectors of taxes for the state, as also help to bring about a centralization of administ...
-Banks Of Issue
The speciality of these banks, especially in connection with facilitating the currency, would be to act as banks of issue. The privilege of issuing bank-notes would be the mark by which this bank woul...
-Paper Currency In India
The original principles on which paper currency in India was established were: first, that the function of note issues should be entirely dissociated from that of banking; second, that the amount of ...
-Paper Currency In Japan
In Japan the regulation with regard to bank-notes is not as satisfactory as is the case in India. The first modern issue of convertible bank-notes took place under the Convertible Bank-notes Law of Ma...
-Paper Currency In The United States
Since 1873 the United States adopted the gold standard, although for a considerable time after that heavy silver purchases were being made and paid for in treasury notes. At the close of 1910 there we...
-Paper Currency In Siam
In Siam there was no purely local note issue; the branches of the foreign banks issued bank-notes up to 1902. The Government then began issuing currency notes and thus gradually drove bank-notes out o...
-Authority To Issue Paper
I have given a brief exposition of the situation with regard to paper money in the above four countries in order that my plan for China might be better understood. As regards the authority to issue no...
-Full Metallic Reserves
At the outset, however, it is safer to begin with a full proportion of metallic reserve in order to bring about a thorough confidence. Such a procedure is, of course, not economical: but it is necessa...
-How Reserves Should Be Kept
But there is another difficulty, peculiar to China, in connection with the issue of paper money. In practically all the countries I have referred to, the note circulation was not attempted until there...
-Coinage Must Be Simultaneous
My proposal, in brief, is that concomitant with the organization of the district banks a sufficient number of the unit coins should be minted. These coins should be that part of the capital provided b...
-District Banks And Local Exchanges
Equally important as the unification of currency is the unification of local exchanges in China, that is, monies of account. It is no use having a single coin or unit which may be legal tender through...
-Regulation Of Silver Supply
Such unification, however, could be effected with the consent and co-operation of local financial institutions or native banks. The advantages of a district bank as proposed by me would now be apparen...
-District Banks And Government
The constitution, functions and the methods of operation of the district banks would have to follow some general rules; and the measure of control to be exercised by the Government should also be deci...
-Methods Of Formation
In order to insure a effective reform as also to secure a perfect system of control by the Government, it is essential that the total number of the proposed district banks should be started, as far as...
-Shares Of The District Banks
Shareholders of the bank should all be public institutions, and not private individuals. This does not imply that I have forgotten the fact that the best of the native banks are owned by single indivi...
-Bankers Of Government
As I have pointed out already, the capital of all these banks need not be uniform. The amount must depend on local trade, currency demand and the capital that the native banks in the locality are able...
-District Banks And Native Banks
So far as the public is concerned, the function of these banks would be mainly to control currency, and on no account should these banks be permitted to compete with existing native banks in ordinary ...
-Foreign Exchange To Be Eschewed
I have already stated the method by which these institutions should manage the various local exchanges. From time to time, frequent shipments and receipts of coin and bullion might be necessary, at th...
-Chapter XIII. The New Coinage
The adoption of the Shanghai tael as the unit and the establishment and proper regulation of the district banks, are preliminaries to the reform in coinage. I have given my reasons for not advocating ...
-Unit Of Standard And Unit Of Coinage
Although I have detailed the considerations recommending the adoption of the Shanghai tael as the best unit of standard for China, from the point of view of old traditions and the existing state of tr...
-The Necessary Coinage
Therefore, my proposal is that the unit of coinage should be five mace or 1/2 tael, only differing from the 50 sen piece of Japan in that, while the latter is only a token, the coin of China would als...
-Introduction Of New Coins
The proper method of introducing the new coinage, both the unit and the subsidiary coins, is indeed a problem. I expressly refrain from discussing the relationship between currency and the balance of ...
-Copper Coins
Now, therefore, the first efforts in the regularizing of currency should be devoted to copper, because as Chang Chih-tung stated 90 per cent, of the business in China is done in copper in the interior...
-Silver Subsidiary Coins
While the circulation of copper coins would thus have to be attended to, the subsidiary silver coins should also attract due attention. For the moment, the position is satisfactory; the provincial min...
-Minting
The introduction of the new coinage presupposes proper arrangements with regard to minting. Owing to the unfortunate delusion among the Chinese that currency reform meant exclusively the introduction ...
-Advantages Of A Central Mint
Any scheme for reform has to decide once for all the proper authority that should have the exclusive right of coinage. As in no country has a bank the right of coinage, the question narrows itself to ...
-Shanghai, Most Suitable For A Mint
The next question is where the mint should be located. Reformers like Dr. Vissering have advocated Peking, and others have advocated the retention of the Peiyang Mint as the central mint for the count...
-Chapter XIV. Foreign Exchange And Reserves
So far, I have dealt with the question of the reform of currency and banking, purely from the point of view of local interests. I adopted this course more from the point of view of convenience, than w...
-The Problem Of Exchange
The difficulties in connection with international exchange, and the fact that China has always been at a disadvantage in this respect, have tended to influence reformers as a rule towards suggesting g...
-Economic Forces Alone Effective
The alternative plan is to let the economic forces have free and full play in the fixing of the ratio between gold and silver, and let legislation play a secondary part to bring about a state more adv...
-The Principle Of Exchange
So long as there is money and trade, so long as the prosperity of one nation depends upon its volume of commerce with others, and so long as it is not possible for any-one nation to settle all its acc...
-Exchange And Trade
Now let us revert to the position in China. As is well known China is not able to pay for all the goods that she buys in the shape of commodities. She has a big annual balance to meet, both on account...
-How Exchange Is Controlled
It might be asked that, if such is the case, what part could exchange play in this adjustment? Under my proposed scheme, there would be no radical change in the situation so far as international excha...
-The Regulation Of Exchange
If the Government or Treasury in China takes upon itself the task of regulating foreign exchange, the next point for consideration is the manner in which it could do it successfully. In India the Secr...
-Reserves And Credit
The Chinese have not yet been fully educated to understand the meaning of reserves; as, according to their traditional ideas, they always consider trading with actual bullion as the most desirable of ...
-Utility Of Reserves
For this purpose, we should start with the proposed district banks. At the start these banks should have the full amount in bullion and coin, to meet all the paper issues. Issues of paper by the distr...
-Reserves And Exchange
The best service that a proposed metallic reserve could serve is the regulation of foreign exchange - as the local exchanges would by then have been fully regulated. The Chinese Government could only ...
-The Modus Operandi Of Foreign Exchange
A detail of the manner in which, with such reserves in London and in China, foreign exchange would be regulated, is necessary to help us understand the advantages. The proposed plan is not altogether ...
-How The Government Might Benefit
But, it might be said that, as the variation in the price of silver does not altogether depend on Chinese trade and Chinese Government payments, the regulation of exchange by such means could not go v...
-Part Of The Reserves May Be In Gold
The advantages of keeping a part of the reserves in gold are that by such means it would be possible to steady the price of silver and that the existence of the gold reserve in London would enhance th...
-The Treasury And Foreign Banks
The relation between the foreign banks and the Treasury, and the foreign banks and the district banks would have to be adjusted on a new basis, when these reforms are carried out. It is a mistaken ide...
-Foreign Banks And Currency Reform
Even responsible people have often thoughtlessly stated that, as the foreign banks make a very large profit in exchange, they would be the chief opponents of any reform of currency. By constant repeti...
-Chapter XV. Native Banks And Native Orders
The reform of banking would thus he considerably simplified by the adoption of the proposals made in the previous chapters. By the adoption of the Shanghai tael and the minting of the unit and subsidi...
-Future Of The "Native Order"
The question of the native orders would also be regulated as a result of such an arrangement. Superficial observers have always made a mistake of lumping good and bad native banks together. When a rep...
-Reform Of Native Banking
The constitution and functions of native banking need to be modified considerably to suit modern conditions. When I stated that it was no use trying to do away with native orders I did not for a momen...
-Reducing The Extent Of Banks Responsibility With Regard To "Native Orders"
It would be a good opportunity for the reputable native banks, operating after the introduction of this reform, to reduce the extent of their responsibility with regard to native orders. There is no d...
-Constitution Of Native Banks
The constitution of Chinese banks is not likely to undergo any serious change for a long while to come; whatever change is desirable should come from within and should not be forced on them. The best ...
-Accountancy
Much desirable change could be brought about in the accountancy of the native banks. The present practice of not having a passbook, and the extraordinary trust between the banker and his client, are v...
-Capital And Branches
As a rule, banks under Chinese management suffer from either extreme concentration of business, or wide diffusion of it. The older native banks as a rule have had rarely any branches outside of the pl...
-Co-Operative Banks
A really sound banking development suited to the conditions prevailing in China is the co-operative movement. The co-operative movement first made its appearance in Germany, and, until recently, has r...
-Chapter XVI. Conclusion
In the preceding chapters I have detailed the broad principles on which the reform of currency and banking in China should be undertaken. As far as possible, I have refrained from going deeply into th...









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