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 to them briefly and only to such an extent as may be necessary to understand the safeguards necessary for the future conduct of native banking. Within two years after the issue of the first bank-notes, the deadlock began to set in. Even from the outset the Chinese bankers were not unaware of the value and benefits of redeeming the bank-notes "on demand." As a matter of fact, excepting on occasions when they were completely on the rocks, they made every endeavour to pay silver for the paper offered to them. If only the several businesses that the bankers financed at the time of the issue of these notes had prospered, it is not at all improbable that the history of banking in China might have had to be re-written. It is extremely regrettable, however, that on account of the over-trading consequent upon the issue of paper money the whole business of the country was getting disorganized. A point worthy of note is that during these years the imports of foreign goods were increasing by leaps and bounds, while exports were slack. The reason was that while the Chinese bank-notes had some value in the ports and with some of the foreign banks - although they finally insisted on being paid in silver - they had no value whatsoever with the farmer. The result was that while the money available for trade in foreign imports at the ports was large, that available for business with the interior, i.e., silver bullion, was comparatively limited.
The situation and competition in foreign trade also helped towards the maintenance of this unsound paper money. Although the banks were not willing to take it as money, some of the foreign merchants, in their anxiety to sell as much to the Chinese as possible, were willing to take them as money - because they knew that they could pay the notes back to the Chinese dealers in lieu of the produce bought from them. .