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 the two crises of the rubber boom and the revolution were those that never issued any paper money and did a minimum of trading. In spite of their caution these were also badly hit; but as their assets were in loans on commodities - however much unrealizable at the moment - rather than in commodities, they were able to hold out. The compulsory weeding out of the banks resulted in enormous losses to dealers and banks; somehow or other, such losses did not have a permanent effect on the growth or continuance of the trade and banking in this country; this was probably due to the extraordinary recuperative power of China. A few months after the close of the revolution new banks were started; although some of them were not quite sound, judged from the point of view of the canons of modern banking, they were certainly better than the average ones of the previous year. Gradually the numbers of the then institutions increased, although even in 1914 the total was about one-third of that of 1910. All these banks, however, do little else besides banking in the proper sense of the word, with slight modifications to suit local conditions. These banks are, to a large extent, substantial. None of the banks have any Government deposits to do business with, for the Government has had very little revenue to speak of, either in Peking or in the provinces; and it has definitely been arranged that all revenue collected should be passed into the Bank of China - wherever it has branches - because that institution practically corresponds to the Government treasury.* Secondly, the foreign banks decided to do away with the chop loan, mainly because of the large element of risk attendant upon giving unsecured loans to the Chinese, and partly because a large number of Chinese banks were unable to return chop loans during the crisis of 1911 and some of the banks even continued to owe on this account at the close of 1914. Apart from this, the Government was borrowing large sums of money to help carry on the Administration, and the foreign banks that controlled the Reorganization loan had a decided objection to a return to the old state of affairs.
* The Bank of Communications receives the revenues of the railways.
The changes brought about by the revolution, or those that helped the banks are Government issues of notes and the disappearance of the Shansi banks. Although the revolution stopped the private issue of notes, since the beginning of 1912, when the Nanking Military Government issued paper money, the provincial Governments have thrown out very large issues. With the experiences of the former paper issues still fresh in their memories the people would at first have none of any more paper; but with the help of large numbers of unruly soldiery, and penalties for refusing to accept paper, the provincial authorities have been able to force circulation. As on previous occasions, the Governments made no pretence of holding any reserves for the paper they issued; and it must be said, in palliation of such an unjustifiable step, that extreme pressure for funds alone made them take such a course. Anyhow, this paper money, which is said to have amounted early in 1914 to about $200,000,000, was in circulation and at heavy discount in the market. These issues, however, helped the native banks, in that practically all such money had to be distributed through them; and helped them in the way of supplying them with a certain amount of capital, without paying for it.
The disappearance of the Shansi banks was indeed a very valuable help to the existing native banks. In certain respects, however, business has been dislocated by the sudden disappearance of institutions which were performing important functions for over eight centuries. The dispatch of money and the sending out of drafts between distant places are invaluable adjuncts to trade; and these were precisely the functions of the Shansi banks. When they closed their doors the native banks have had to do this business. It was not done quite satisfactorily, because the public had not the same confidence in the latter, which had for centuries been purely provincial institutions. The Government institutions like the Bank of China, and the Bank of Communications, have been taking up a great deal of the business of the Shansi banks; and in conjunction with these institutions the native banks are also benefiting.
I believe I have given a brief and satisfactory statement of the history and position of banking in this country from the earliest times up to date. Although, as an institution, banking has existed in China at a much earlier period than probably in any other part of the world, the development has been stunted so much that compared to the situation in Europe to-day, banking in this country is in a very elementary stage. The one point which the Chinese banks have never understood is the importance of reserves; of course, the confusions arising out of an inchoate position of currency must answer a great deal for the stagnation of banking. I have refrained from going into the position of foreign banking in this country, because my thesis has nothing to do with the progress or development of foreign banking in this country, except as co-related to native banking.