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 this unit. A standard silver coin was, however, to represent this unit while provision was made also for the free coinage in gold, on demand, of multiples of this unit. The silver coin was to be unlimited legal tender and the intrinsic value of the metal in the coin was to be less than the coin value. The coinage ratio recommended was 32 to 1, which at that time was about 20 per cent, higher than the market ratio. The Government was to control the amount of the issues, so as to keep them within the demands of trade for legal tender money. All payment to the Government was to be made in the new coins and private debts were also to be paid in them; arrangements were to be made for the sale of drafts at or near par upon gold reserves kept at some c6nvenient foreign centre. By these means it was proposed to maintain the parity of the new unit and its subsidiary coins with the gold standard. Before proceeding with the details and reasons for this scheme of Professor Jenks it is necessary to understand the actual purpose of the Commission. The object and methods of the Commission may be briefly described as follows:
"First: To secure a general view of monetary conditions in China and of the methods of doing business under the various conditions found in different provinces. In the interior many days were passed in localities where no money is employed excepting copper cash and chunks of silver (sycee) which have to be weighed out by scales which each dealer or traveller keeps for the purpose. As opportunity offered, conversations were held, not merely with officials of all ranks but also with bankers, merchants and even with day labourers, local travelling peddlers, roadside workers, etc. In this way a reasonably accurate idea was secured of the methods of conducting business without any generally recognized currency, and the probable ability of the people of all classes to deal with a new and uniform money.
"Second: Conferences with the officials from day to day, between those of high rank, such as viceroys and governors, and those of lesser rank, such as local district magistrates, gave an opportunity to estimate the qualifications of those in whose hands would need to be placed, to a greater or lesser extent, the administration of the new system when it should be adopted.
"Third: The attitude of the people of various classes, officials, businessmen and common people, toward a change in the system and toward the new monetary system suggested, was ascertained.
"Fourth: Opportunity was offered to explain, in part, the main points of the system proposed to the viceroys and other leading men, officials, bankers, merchants, etc., so that thus valuable criticism of the plans from the point of view of these familiar with local conditions was secured, and in many cases opportunity was offered to remove from the minds of those who did not understand the purpose of the invitation of the Chinese Government or its attitude toward the United Staets in this matter, the natural suspicion regarding the motive of the United States in undertaking this work; and, furthermore, objections which would occur to those not familiar with the administrations of currency systems, were overcome."
A considerable gold reserve was the fundamental of the proposed reform, even to maintain parity of the silver coins; a foreign loan was therefore necessary to obtain this reserve. As in every other scheme proposed for the adoption of the gold standard Mr. Jenks laid special emphasis on high seigniorage profits from the coinage of the silver standard coins and fractional pieces going to strengthen the gold reserve.
It is notorious that along with every scheme for the adoption of the gold standard the suggestion for a formation of a central bank has been consistently advocated.. I believe that the reform of currency and banking in China should be dealt with separately, and on their own respective merits - although it is beyond question that these two are very much inter-related. The establishment of the state bank has been brought in by Professor Jenks, as by other reformers, because of the constant necessity of replenishing reserves, once the gold standard was adopted. Professor Jenks began with the premise that all the seigniorage profits from coinage would go to strengthen the reserves. But these reserves would constantly be depleted by the sale of drafts; hence it was suggested that the comptroller was to honour silver drafts drawn by the agents of the Treasury abroad, in exchange for gold. Why? Because once gold was adopted as the standard, it was necessary that the money received in exchange for foreign drafts was not to be re-issued but held in the vaults. The resulting contraction of the currency would facilitate the shipping of merchandise with a view to meeting foreign obligations; thus double advantage would be secured of not only encouraging exports, but also keeping in circulation the money which was legal tender and the intrinsic value of which would have increased. But the convenience of businessmen was also to be considered. It would certainly be more profitable to them to exchange gold for the legal tender silver coins, at the government bureau and thus obtain the money needed to meet their obligations in China; there was also an alternative course of purchasing silver drafts from agents of the Treasury abroad. It was here that the advantages of the establishment of a central bank came in; mere fixity of currency was of no value unless there was a certain amount of elasticity in it. The central bank was to bring this about by the issue of convertible note currency.