Chapter 49 49. The Silver War and the Currency Reform of the National Government

As mentioned above, the currency system in the 1920s and 1930s was extremely chaotic, which not only hindered the circulation of goods and the expansion of trade, but also provided convenient conditions for the warlords to separate themselves.After the victory of the Northern Expedition, the Nanjing National Government realized that the chaotic currency status was not only incompatible with the world trend, but also seriously affected the development of the national economy, and thus the currency system reform in the mid-1930s began. As early as 1903, Hurd, the General Taxation Department of the Customs, suggested that China implement a "gold standard". Professor Jing Qi from Cornell University also made similar suggestions when he visited China. In 1907, under the proposal of Wang Daxie, the Minister to the UK, the Qing government set up a currency bureau to implement reforms, but it was interrupted by the Revolution of 1911.After the Republic of China, when Liang Qichao was the chief financial officer, he declared with great fanfare that he would implement the gold exchange standard system.Later, Cao Rulin succeeded the Minister of Finance and also promulgated a "Golden Voucher Regulations", but due to the unstable current situation, it was finally dropped.

In the early years of the Republic of China, some businessmen also spontaneously put forward the idea of ​​"abolishing silver taels and replacing them with silver dollars". Silver" will surely make them lose this business.According to the exchange rate at that time, every hundred silver dollars can generally be exchanged for about seventy-two taels of silver (the lowest is only sixty-eight taels), and there is a lot to be done about the fluctuations in the middle. For example, in the "January 8th" incident in 1932, due to the need to fight against the enemy, there was a shortage of silver dollars, which caused the exchange rate to soar to two to seventy-four taels per hundred yuan. Because it is profitable to hoard silver dollars, a large number of silver dollars at home and abroad In a short period of time, it quickly flowed into Shanghai.But later, because of the signing of the "Songhu Armistice Agreement", the current situation stabilized, and there were too many silver dollars, which caused the exchange rate to plummet to two or seventy taels of silver per hundred yuan. loss.As a result, the voice of "abolishing the two and changing to silver" has increasingly gained the support of public opinion.

After research by the Ministry of Finance, the Nanjing National Government announced in 1933 the plan of "abolishing the two and changing the yuan", which has two main contents: one is to abolish the silver and use silver. The second is that the central government uniformly casts new silver coins as the fixed main currency, but in a certain period of time, the old silver coins can still be used as usual.The new silver dollar is cast according to the fineness of the old silver dollar. Each piece contains 88% silver and 12% copper. Each dollar is exchanged for two seven cents and fifteen cents of silver. silver dollar.

As a result, the silver system that has lasted for more than 400 years has gradually withdrawn from the historical stage, and the silver dollar, which is basically uniform in size, weight and fineness, has become the main currency in circulation, which greatly simplifies the types of currency and improves the confusion.However, the ultimate goal of the national government's currency value reform was to promote legal currency and eventually move towards the era of paper money. In fact, the time for the national government to implement the currency reform was not the best, because after the outbreak of the world economic crisis in 1929, Western countries such as Britain, Germany, Japan, the United States and other countries successively abandoned the gold standard in order to implement the policy of currency devaluation. Improve the competitiveness of domestic products in the international market, so as to achieve the purpose of dumping domestic surplus products and passing on the crisis.Historically, most countries in the 19th century implemented the silver standard, but at the beginning of the 20th century, countries abandoned the silver standard and switched to the gold standard.Among the major countries in the world in 1930, except for China, Mexico and Spain, which were still implementing the silver standard, silver in other countries became a common commodity.

This has led to a serious problem, that is, the Chinese monetary system using silver dollars as the main currency will inevitably become unstable due to the rise and fall of the world silver price.As the largest silver user at that time, China's annual silver output was not high. Once the country's silver price fluctuated too violently, it would seriously affect the stability of the country's currency and the entire economic operation.For example, in the ten years before 1928, the international silver price was relatively stable, but after the world economic crisis, the silver price fell for four consecutive years. Banks in China of various countries bought silver for speculation, and the amount was close to 300 million yuan.

After the United States abandoned the gold standard in 1933, it subsequently promulgated the "Silver Purchase Act" and "Silver Act".The U.S.’s move was ostensibly to please the domestic silver mining capitalists, but in essence it was to stimulate the purchasing power of silver-standard countries by raising the price of silver, so as to help dump U.S. surplus products to these countries and alleviate the country’s economic crisis.As U.S. President Hoover said, "The purchasing power of China and India depends on the price of silver, and they are now affected." This selfish practice of the United States triggered a "silver wave" around the world, and also had a great impact on China's economic and currency reform.Due to the massive purchase of silver by the United States, the price of silver in the world soared rapidly. In major financial centers, the price of silver in London jumped from 20 pence per ounce to 33 pence, while the price of silver in New York also rose from 45 cents to 74 cents. At one point, it broke through 80 cents, nearly doubling.

Since the price of silver in London and New York greatly exceeds the domestic price in China, this not only makes those foreign banks in China ship their stored silver abroad for sale, but also makes some foreign banks spare no effort to collect silver in China and even earn money through smuggling. profiteering between.In just a few months, foreign bank deposits in China have dropped sharply from more than 200 million yuan to less than 20 million yuan, the lowest point in decades. The consequences of the massive outflow of silver were extremely serious.As early as before the first Opium War, some officials in the Qing court realized that the opium trade led to a large outflow of silver, which eventually caused domestic deflation, and even the military salary could not be paid by then.This time, the outflow of silver caused by the "Silver Act" in the United States is even more ferocious. Although silver has increased China's purchasing power, the more serious consequence is that the continuous outflow of silver has caused deflation (silver dollars continue to flow out of the country). The tightening of money by the big banks seriously affected the normal lending, and the result triggered a chain reaction: industrial and commercial enterprises had difficulty in capital turnover due to lack of loans, and were unable to expand or operate normally, which in turn caused a large number of workers and employees to lose their jobs. Because the consumption power was weakened, the prices in the market plummeted, and as a result, a large number of industrial and commercial enterprises became unprofitable, and a large number of them went bankrupt.According to statistics, around the Mid-Autumn Festival in 1935 alone, 166 shops in Shanghai closed their doors.

When discussing the "Silver Act" in the United States, the Chinese Bankers Association sent a letter to the United States to express its opposition, but the United States government ignored it.After a large amount of silver was outflowed from China, Chinese Finance Minister Kong Xiangxi even ignored the normal diplomatic procedures and directly appealed to President Roosevelt, hoping that the United States would inform China in advance when buying a large amount of silver, so that China could respond.Three months after the implementation of the "Silver Act", the Chinese ambassador to the United States, Shi Zhaoji, once said indignantly: "China is a silver-standard country, and the U.S. Silver Purchase Act has caused China to suffer from monetary tightening, economic losses, and a huge outflow of silver. It is shocking... ...China, in order to avoid losses, should not maintain the silver standard system alone, so it has considered gradually adopting the gold standard system.”

When all kinds of negotiations were ineffective in the end, the national government had to take remedial measures on its own to try to stop the crazy outflow of silver. In October 1934, China announced the introduction of a 10% silver export tax and a balance tax determined according to fluctuations in the world silver price to prevent or reduce the outflow of silver.However, after the heavy tax on silver was imposed, although the normal export has decreased, because the international silver price is still rising, the situation of exporting silver through smuggling and even some countries using warships to transport silver still occurs frequently.According to a rough estimate, the silver outflow from China in 1935 was still as huge as 150 million to 230 million yuan.

Having said that, the "Silver Act" in the United States that "increases the price of silver to increase the purchasing power of people in silver-standard countries" is actually a political game through and through.In fact, it cost the U.S. government $1.5 billion, got very little out of it, and, as a serious by-product, sparked a financial crisis in China.For China, the US "Silver Act" is simply a disaster. It is not only the United States that has created financial disasters, Japan is even more active in it.At that time, many Japanese, as well as some profiteers who were bribed, collected silver dollars all over the country, whether it was eagle dollars or dragon dollars, or newly issued silver dollars, or even some miscellaneous coins made in various provinces, all of which were included in the collection. Then shipped out together.In North China, the Japanese ronin even smuggled silver on a large scale with arms.At that time, the silver dollar was to finance what blood was to the human body, and the Japanese were doing the work of drawing blood day after day, which showed the fierceness of the economic war.

The large outflow of silver has fundamentally shaken the foundation of China's silver standard system.The facts are clear. The root cause of the silver boom in 1934 was that silver was a general commodity in the international market, but a currency in China. When the international silver price fell, silver poured into China; Mass outflows are the law of the world economy and cannot be stopped.Once the international silver price is maliciously manipulated by other countries, a large amount of disorderly inflow and outflow of silver will inevitably cause a series of financial and economic chain reactions to the silver standard countries.Therefore, only by stepping up the implementation of currency system reform can we cut off the serious impact of silver price fluctuations in the international market on China's economy. With no hope of stabilizing silver prices, China accelerated the pace of currency reform.Since Britain's trade volume in China was six times that of the United States at that time, China's economic chaos was bound to affect Britain's interests, so the Nationalist government turned to Britain for help. In August 1935, the United Kingdom sent its chief economic adviser, Liz Ross, to China, whose task was to plan currency reform for the national government.The United States was not far behind when it heard that Britain was involved in the event, and then recommended the president's economic adviser Young to come for consultation, and the national government welcomed both Britain and the United States. It was not without reason that the Nanjing National Government adopted a pro-British and American foreign policy, which had a lot to do with the crisis China faced in the 1930s.After the "September 18th" Incident in 1931, the ambitions of the Japanese were clearly revealed. From the northeast to Rehe and Chahar, and then coveted Shanghai and North China, it can be said that they are advancing step by step. If the "heart" is not dead, it will only be a matter of time before a large-scale invasion of China.Therefore, the national government should not only consider being close to the United Kingdom and the United States on the issue of currency system, but also make full preparations for the future anti-aggression war, because the competition on the battlefield is not only military power, but a protracted war is a severe test of the economy.In this sense, the success of the currency system reform is not only the strategic need to prevent Japanese aggression, but also the key to winning future wars. Looking back on the nearly 100-year history since the late Qing Dynasty, one of the important reasons why China has been repeatedly invaded by foreign enemies and has no power to fight back is that the central government lacks the ability to operate modern finance and economy, and cannot effectively mobilize the power of the whole country in a short period of time. (including funds and materials), so that the power of a big country cannot be fully displayed, which makes China a big country, but it is always passively beaten in wars (for example, in the Sino-Japanese War, China’s strength in all aspects is not inferior to that of Japan) . After several months of intensive preparations, the national government issued the "Emergency Order on Currency Reform" in November 1935, announcing the implementation of the legal currency policy.The main content of the legal currency policy is: since November 4, 1935, the banknotes issued by the Central Bank, the Bank of China, and the Bank of Communications (later added to the Agricultural Bank of China, collectively referred to as the "Four Banks") will be designated as legal currency. All payment of grain tax and all public and private funds shall be limited to legal currency, and cash shall not be used; currently circulating silver dollars, silver taels, etc., can be exchanged for legal currency through banks in proportion. After announcing the implementation of legal currency, China actually gave up the silver standard, and the value of the currency is no longer affected by the fluctuation of the world's silver price. However, the Chinese have a history of using silver currency for hundreds of years, and it is difficult to adapt for a while (China People have a natural distrust of paper money).In the beginning, many people were unwilling to exchange their silver dollars for legal tender, but hoarded them.In addition to traditional concepts, there is another reason why people are unwilling to exchange legal currency. That is, at the beginning of the issuance of legal currency, the regulation was that silver dollars were exchanged for one dollar of legal currency. 60% of the price, people feel that they are at a disadvantage. Until later, the authorities forced all small and medium-sized banks, money houses, silver houses and their silver products enterprises or shops to exchange their stored silver coins, silver ingots, silver bars, and silver nuggets into legal tender. Concentrated selling in the market in exchange for foreign exchange, in order to promote the fall of the international silver price, the people's willingness to exchange legal currency has increased.When the redemption of silver dollars was not going well, the national government came up with a coup, that is, through the issuance of new auxiliary coins, it collected a large amount of the original old auxiliary currency silver dimes. It turned out that the provinces issued a large number of auxiliary coins and silver coins before, although the amount was small but large, because there were not many opportunities to use silver dollars in daily life, and the new auxiliary coins minted by the National Government at that time were nickel coins and copper coins. Any silver component, but it looks good and delicate, and the secondary coins need to be used frequently, so people go to exchange them one after another, which increases the unexpected silver reserves.At that time, the Japanese ignored the silver coins because they specialized in collecting silver dollars, which was a mistake.After nearly two years of hard work, the national government has collected a total of 500 million ounces of silver, which has also become the main reserve for the issuance of legal currency. In addition to using silver as a reserve, the national government also stabilized the new currency system by pegging the French currency to the British pound and selling silver to the United States in exchange for U.S. dollar foreign exchange. It is more convenient to develop trade with China.But the strong neighbor Japan is different. They do everything possible to make China their vassal, so they hate China's currency reform, especially the participation of Britain and the United States.Japan knows very well that once China's currency is pegged to Britain and the United States, it will inevitably affect Japan's interests in China and increase its resistance to control or invasion of China. This is what Japan does not want to see.Japan has repeatedly stated publicly that China's currency reform is an "open challenge to Japan", "does not cooperate with the new currency", and "categorically opposes it". The Japanese military also said viciously, "The empire cannot ignore this!" In fact, Japan not only smuggled and exported China’s silver secretly, but also used force to prohibit the southward transportation of silver in North China (at that time, Japan had already engaged in “specialization” in North China as a prelude to aggression), in order to destroy China’s silver as much as possible. China's legal currency implementation.However, due to various factors at home and abroad, Japan was unable to fundamentally reverse the process of the national government's currency system reform because it had more than enough energy to do so.From the perspective of conspiracy theory, Japan launched the war of aggression against China in advance in 1937, probably because it was deeply disturbed by the prospect of China's rapid rise due to the successful currency reform. It is undeniable that after the national government implemented the legal currency policy, the domestic economic problems caused by deflation were quickly improved, domestic prices began to rebound steadily, and the production of various industries tended to improve.At that time, the newspaper reported: "After the reform of the currency system, due to the recovery of the rural economy and the recovery of the purchasing power of farmers, various domestic emerging industries can turn the crisis into safety and become bright again, especially the textile industry. ... Others such as chemistry, papermaking, Sugar, gum and other industries also gradually recovered and developed.” More importantly, the national government's legal currency reform ended hundreds of years of currency chaos and realized the unification of China's currency system, which was also in line with the world trend at that time and the needs of China's future development.In addition, the large-scale exchange of precious metals such as silver played an important role in guaranteeing the victory of the War of Resistance, because these hard currencies can be used to purchase foreign arms and supplies.In other words, the national government redeemed the silver and silver dollars held by the people and business groups through legal tender, which was actually a powerful means of concentrating funds, and it was also an advantage that previous governments did not have. It is tantamount to using the economic strength of the whole nation to fight against the Japanese aggressors.Therefore, the contribution of the success of the legal currency reform to China's victory in the War of Resistance cannot be ignored. Of course, it must be pointed out that the Kuomintang’s reform of issuing legal currency provided convenient conditions for the subsequent excessive issuance of banknotes, which in turn led to extremely serious inflation and rapid shrinking of national wealth. This is also a common feature of all irresponsible governments.The hyperinflation caused by the abuse of the right to issue banknotes is actually a kind of robbery of the people, and the actions of the Kuomintang government after the end of the Anti-Japanese War have left a rare negative teaching material in the history of world finance.Therefore, it is not surprising that silver taels and silver coins became active again in the last period of Kuomintang rule.After all, gold and silver are always gold and silver, and their charm shines far more than paper money.