China Money

On Saturday, March 13, 2010 2:55 PM, "Stephen Williamson" wrote:

Subject: China and its government "money"

Updated in 2024

Hi all

Just been having a look over several articles on the web on the history of paper "money" in China. Yes, it did last for 400 or so years, from 1023, but as I thought, pretty much inconvertible to silver and gold, and with nothing backing it other than the government's insistence that it was to be legal tender, especially when paying taxes. Salt licenses, and land tax at a local government level, were its two major sources of income.

Paper money finally wound up, due to hyperinflation (and, I imagine, massive unpopularity) in 1450.

Then normal trading conditions worldwide, after a fashion, using silver ingots and copper coins, until 1889, when paper currency started up again, combined with the government's issue of the silver yuan, in response to the Japanese silver yen in 1871 and the Singapore and Spanish trading dollar.

But heaps of problems again with it, a civil war and revolution in 1912, war with Japan in 1931, and then the Communist government taking over in 1949, with immense hyperinflation.

Interestingly, way back in 1023 it appears Jewish traders played a fairly important role in the government at the very beginning of this exercise.

In a study by Qiu Shiyu, researcher of the Harbin Academy of Sciences, a group of Jewish people came to China for trading in the middle of the 10th century. Most of them reached what is known today as Kaifeng in Henan province, the capital of the Southern Song Dynasty (1127-1279) and the most prosperous business metropolis at that time. Jewish people had important roles in the governmental departments in the businesses of taxation, financing and trading, according to Qiu's study, which revealed that "they were possibly omnipotent people," said Qiu. Jews enjoyed great honor for their talent and hard work. During the reign of Jin Shizong (1161-1189), the central government established a synagogue for them, which was China's earliest church of its kind.

Ok, here's a brief account.

After many years of using letters of credit (or "flying money"), the S'ung dynasty was the first to issue true paper money in 1023, and it did so at first cautiously, issuing small amounts, used in a limited area, and good for a specific time period. The notes would be redeemed after three year's service, to be replaced by new notes that included a 3% service charge, a neat way for the government to make money.

The abuses started immediately. Though the notes were valued at a certain exchange rate for gold, silver, or silk, in practice convertibility was never allowed. Then, the notes were not retired as they printed many more of them. The government made several attempts to support the paper by demanding taxes partly in currency and making other laws, but the damage had been done, and the notes fell out of favour.

In 1217, the Mongols successfully invaded from the north. The Mongol empire issued paper money on a moderate scale in 1236, known as the First Mongol Issue.

Then, in 1260 Kublai Khan decreed that this paper money must be accepted by traders on pain of death. As further encouragement, he confiscated all gold and silver, even if it was brought in by foreign traders. He furthermore demanded that a certain percentage of taxes be paid using paper money.

Excessive printing year after year soon flooded the market with depreciated paper money until the face value of each certificate bore little or no relation to its counterpart in silver. In 1272 a series of new issues were put in circulation at a conversion rate of five old notes to one new one. This became known as the Second Mongol Issue.

When Marco Polo visited China (1275-1292) he was so impressed by paper money that he wrote a whole chapter in his Travels, describing everything about its manufacture and circulation. He described the manner in which it was issued:

"All these pieces of paper are issued with as much solemnity and authority as if they were of pure gold or silver; and on every piece a variety of officials, whose duty it is, have to write their names, and to put their seals. And when all is duly prepared, the chief officer deputed by the Khan smears the Seal entrusted to him with vermilion, and impresses it on the paper, so that the form of the Seal remains printed upon it in red; the Money is then authentic.
Anyone forging it would be punished with death."

He wrote that the emperor of China made so many notes each year that he could buy the whole treasure of the world, 'though it costs him nothing'.

While Marco Polo reported relative success of the Chinese monetary system in Europe, continued depreciation required another revaluation in 1309. The Third Mongol Issue followed the same 5:1 ratio of its predecessors. In an effort to reduce the amount of notes in circulation the government often refused to exchange new issues for old certificates that had been worn out through use.

Around 1350, during the final phase of the Mongol dynasty, huge efforts were made to correct the currency. Paper notes issued by private, provincial and central government agencies had resulted in an explosion in credit and subsequent precipitous fall in its value.

In 1374, the new Ming dynasty issued its first paper money, known as Ta Ming T'ung Hsisng Pao Ch'ao ("Great Ming Precious Notes"). (Once again), these notes were inconvertible to coin and little effort was made to maintain the value. Six different issues are known to have occurred between 1368-1426 although it is likely that there were many more.

The value of these notes rapidly declined and by the early 15th century, the ratio between the paper and coin exceeded 300:1. The Great Ming Precious Notes were eventually suspended in 1450, though they are recorded as being in circulation until 1573.

Silver became the preferred medium of exchange, following a tradition that goes back thousands of years. Silver circulated as ingots that were called "sycees", weighing about 36 grams.

For the next 450 years China functioned under a silver and copper economy. This ended following the revolution and overthrow of the emperor in 1911, followed by Chiang Kai-shek's rise to power in 1927, and formation of a Central Bank.

Banknotes had been issued in yuan (and dollar denominations - the two words were equivalent) from the 1890s by several local and private banks, along with the Imperial Bank of China and the "Hu Pu Bank" (later the "Ta-Ch'ing Government Bank"), established by the Imperial government. From 1913 - 1952 the bank was known as the Commercial Bank of China.

Banknotes of this yuan (issued as "Fabi" notes in 1935) suffered from hyperinflation.

Following World War 2, the Gold yuan (worth about 30 US cents) was issued in Shanghai in August 1948 in exchange for 3 million Fabi notes. But with prices increasing 10-fold monthly, the People's Bank in Beijing, founded December 1948, issued their yuan, worth 100,000 of the Gold yuan. In 1955 a second yuan was issued, worth 10,000 of the first, at 40.65 US cents.

It is today known as the renminbi yuan, overseen by the People's Bank of China or PBOC.

Following the death of Chairman Mao in 1976, an increase in gold mining in China steadily built up China's gold reserves.
Also PAYE taxation on personal income commenced in 1980, and the country opened up its economy to overseas trade in US dollars, devaluing the yuan in order to trade more competitively.

Recent News
In 2015 China launched the Cross-Border Interbank Payment System (CIPS), a payment system offering clearing and settlement services in cross-border RMB payments and trade, backed by the PBOC. It is intended to internationalise RMB use, counting several foreign banks as shareholders, including HSBC and Standard Chartered in London, the Bank of East Asia in Hong Kong, DBS Bank in Singapore, Citi in New York, ANZ Banking Group in Sydney, and BNP Paribas in Paris.

Its essential complement is CNAPS, the China National Advanced Payment System, an inter-bank clearing system for processing Yuan payments internally. Each CNAPS number is a 12-digit number to be used as a clearing code by Chinese banks. Click here for further details.

** End of article

Cheers Steve

Stephen Williamson Computing Services Pty Ltd