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 difference in the practical application of the principle of the help rendered by banking to business. While in Europe the growth of banking is following the lines of using as little money as possible for the conduct of as big a trade as possible, in this country on the other hand the growth of banking has been concommitant with the increased use of money in paper, silver or coins. While in Europe and in other parts of the world the main purpose of banking has been to facilitate credit as much as possible, in China banking has developed along with the restriction of credit. While in Europe the tendency is for banks to have as little to do with actual trade as possible - their function being limited to financing trade - in China growth of banking has been parallel to the enlargement of the interests of banking in actual trading.
* During the banking crisis that followed in the wake of the Revolution of 1911. many native banks were unable to return chop loans. Even in 1914 a large balance was outstanding. Consequently, foreign banks stopped giving chop loans to the native banks.
The result of the growth of banking, as it has taken place in China, has been an inevitable mix up of trading and banking. How is it that such a tangle came into existence? No doubt there are institutions which do banking, pure and simple; but on a whole circumstances have conspired to bring about a situation, which has proved beneficial neither to commerce nor banking. The very fact of there being no proper money, or medium of exchange, proved a check to the growth of banking on proper lines in this country; it has always been the case ever since the dawn of history in this country that business meant not only the exchange of commodities for money but also business in money. There is a double transaction in every business; one is the fixing of the value of the commodities and the other is the fixing of the medium of exchange, or what is for the time being known as money. It is therefore evident that, even supposing the banks had nothing to do with business in commodities, they had to do business in money besides their regular routine of banking. Two centuries ago the situation was somewhat similar in Europe; and even as late as the fifties of the last century there were about sixty different currencies in what is now known as the German Empire. Even before the adoption of the gold standard, conditions in Europe tended to simplify the difficulties encountered by banking as banking. Even though gold and silver circulated side by side and were independent of each other, there was more or less a fixed ratio between the two metals. And although this relation was many a time upset, for various reasons, readjustment took place within as short a period as possible. Even when Europe had no standard it was understood that only gold and silver should serve as money and that with slight variations the relation between gold and silver should be on a certain basis. In this country, on the other hand, the difficulties in the path of banking were several. First of all, there was copper, which was considered as money besides gold and silver. Secondly, the unit of currency in this country has been, and remains even to-day, the lowest ever known on earth; and the value of even this cash varies with different places. Thirdly, apart from gold and silver, commodities like silk have served the purpose of money even during recent years.
It is no wonder then that, from its very inception, banking in China should have been confronted with two alternatives: either to do business in the several metals and commodities which served at several periods as mediums of exchange or to go out of business altogether. The primary object of any business, including that of banks, is to make profit; so long as such was obtained by what was commonly understood as legitimate means there was no reason to object to it. In the early years of native banking there was nothing to do but to follow in the wake of other business, if the banks were to prove a source of profit to their proprietors. It is only human for the proprietors or managers to follow the line of the least resistance in the conduct of their business.