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 money into circulation and the new native banks helped them considerably. Want of capital was, for a while at least, no check to the growth of the business or existence of the unsound banks. Very soon, however, the hollowness of the whole position became apparent; but that did not militate against the fact of their having been able to do a very large business for a few years. It is worth while describing how that happened.

The foreigners, especially the new-comers, were anxious to introduce their goods into the market; and although they did not like the situation with regard to money, they were still willing to take risks which people with experience in China were absolutely unwilling to take. One of the risks that the new-comers took was that of accepting the unsound paper money, which was freely distributed through the questionable native banks. In this connection I should not omit to mention that a few - although very few - of the newly started native banks followed official ones in providing themselves with capital through the medium of the printing press. The foreign Chambers of Commerce protested against the arrangement; but it was found that there was no determination on the part of anyone connected with the trade to put an end to this nuisance. No doubt there was the ever-present danger of having to throw all this paper into the waste-paper-basket - paper which was without question being accepted as money. The Chinese were at first chary of accepting this paper, but when they found that the foreigners took it they also took it reluctantly. Under other circumstances, if the import and export trade had balanced each other, there might not have been any difficulty. What really happened was that when foreigners accepted the notes as money they were able to induce the Chinese holders of produce to accept this same paper. These produce holders at first hesitated; but the native banks were willing and able to take the paper back without any difficulty whatsoever - especially as all business had to be done through the banks. Without being money in the proper sense of the word, paper money served as the medium of exchange between exports and imports; and the banks had enough silver to adjust the balance one way or the other. This paper, however, was of little value in the distant parts of the interior. The banks had to finance the exports with silver while, for various reasons, import cargoes would not sell and no silver was coming in to replenish the depleted coffers, - which were always replete with paper. Even attempts to sell the stock of cargoes with the native banks to the interior at heavy losses proved futile, because of the sudden and artificial expansion of trade.