Chapter 69 Exchange Stabilization Fund: Second Central Bank

After many efforts, in March 1939, the Chinese and British governments finally reached an agreement.In China, Bank of China contributed 3.25 million pounds, Bank of Communications contributed 1.75 million pounds, and in the UK, HSBC contributed 3 million pounds, and Standard Chartered Bank contributed 2 million pounds, totaling 10 million pounds (about 50 million U.S. dollars, 1 billion French currency). The "Sino-British Stabilization Fund" was formed, and all pounds were deposited in the account of the Chinese government in the Bank of England, and the "Sino-British Foreign Exchange Stabilization Fund Committee" was formed to intervene in the foreign exchange market and stabilize the value of the legal currency.

However, the 10 million pound stabilization fund is facing a large-scale modern war, the devastation of the war, the extreme shortage of materials, skyrocketing inflation, the currency offensive of counterfeit legal currency to extract foreign exchange, coupled with the speculators Adding fuel to the flames, the 10 million pound stabilization fund soon couldn't support it. At the end of May 1939, only two months after the Stabilization Fund began to operate, the 2/3 pound bullets of the entire fund had been exhausted.However, in the face of the terrible wealth meat grinder of war, and the frantic escape of legal currency funds, they simply cannot stand up to it.By mid-July, the Pingzhun Fund ran out of ammunition and food!The national government's foreign exchange reserves also fell to the lowest point since the outbreak of the Anti-Japanese War, and the central bank's foreign exchange surplus was only 25 million US dollars. [5] In desperation, the Stabilization Fund Committee had to stop selling foreign exchange twice, and the legal currency inevitably depreciated sharply. By October 1939, 1 yuan of legal currency had fallen to a record low of 4 pence.

At this time, the Americans made a move. In July 1939, Arthur Young, an American advisor to the Ministry of Finance of the Nationalist Government, informed the American embassy: "In the past three days, the consumption of the Stabilization Fund has been unusual, and about half of it was purchased by American Express and Citibank. [6] Even Kong Xiangxi, who has always been pro-American, was also angry. On July 18, he directly called the US State Department: "The foreign exchange situation is becoming increasingly severe, and there is very little left in the stabilization fund. Most of the foreign exchange sold recently was bought by foreign businessmen. According to the reports received, a considerable share of it was purchased by American Express, Citibank and other American companies. This is not a friendly move by any means. Therefore, please stop this matter as soon as possible.” [7] Kong Xiangxi’s The words were so harsh that they almost scolded her mother directly.

At this time, it was Hitler who stood up to rescue China. In September 1939, Nazi Germany blitzed Poland.On the same day, Britain and France declared war on Germany, the British pound depreciated accordingly, and the French currency appreciated in the Shanghai foreign exchange market.By the beginning of 1940, the exchange rate of French currency against the British pound had risen by 80% and by 50% against the US dollar.The Stabilization Fund Committee took the opportunity to sell legal currency to buy back 4.2 million pounds, equivalent to 40% of the total previous sales. 【8】However, the good times did not last long, and by March 1940, the situation became severe again. In early May, the Stabilization Fund Committee once again stopped providing unlimited foreign exchange to the Shanghai foreign exchange market, and the French currency plummeted against the British pound.Two months later, only GBP 2 million of the GBP 10 million China-UK Stabilization Fund was left, and it was no longer able to function as an equalizer for the value of the legal currency.

The Japanese toppled the stage, the traitor and puppet government toppled the stage, the Americans also toppled the stage, the speculators contributed to the flames, and the European war broke out again. There was only one way before the national government - to ask the United States for help. On May 14, 1940, Chiang Kai-shek called US President Roosevelt, pleading: "Japan's military progress has been hit, and the undeclared war has turned into an economic war. Recently, the puppet organization announced the establishment of an issuing bank in Shanghai. The situation is becoming more and more dangerous, and the pressure on our country's currency system is becoming more and more serious, resulting in rising prices and falling exchange rates. If the foreign exchange fund is not replenished, the economic situation will become weaker and weaker, and the business will become more chaotic. The Japanese use the power of the puppet organization to control our country's currency system, and our country's economic interests will be destroyed...In this emergency, lend me cash to maintain our country's currency system." [9] The United States is still waiting for "more favorable" Chiang Kai-shek couldn't wait for the quotation.

In June 1940, Song Ziwen personally went to the United States to ask for help.At this time, American society is dominated by "isolationism". The American people feel that there are two oceans for protection. No matter what the Japanese or Germans can do to me, why bother to build up the bones of their children for the Chinese and Europeans.Although President Roosevelt had a far-sighted vision, he had to be cautious about aiding China under the pressure of popular votes.It wasn't until the Wang Jingwei puppet government was established that the arrogance of the Germans also put pressure on the Chinese government and demanded a compromise with Japan. Roosevelt, who was afraid that China would not be able to hold back and fell to Japan's side, let go and agreed to lend to China's foreign exchange stabilization fund.

After repeated bargaining, China and the United States finally reached an agreement on the Stabilization Fund and its management committee in April 1941.On the same day, a new Sino-British stabilization fund agreement was also reached.Subsequently, the three countries exchanged notes and merged the two stabilization funds. The United States contributed 50 million U.S. dollars, the United Kingdom contributed 10 million pounds (about 40 million U.S. dollars), and China contributed 20 million U.S. dollars, totaling 110 million U.S. dollars to form a new "China Fund". US-UK Stabilization Fund". 【10】The newly established fund committee is powerful. In addition to daily foreign exchange market operations and leveling the exchange rate of fiat currency, it also has the right to review all Sino-US trade.No matter who it is, as long as they do business between China and the United States, they must hold a certificate of approval for the use of foreign exchange by the Fund Committee before they can order goods from the United States to be shipped to China.And for all Chinese exports to the United States, the U.S. government will only allow the goods to enter the customs by showing the certificate that the foreign exchange has been sold to the Stabilization Fund Committee.In other words, the Stabilization Fund Committee is not only China's de facto central bank, but also China's highest foreign trade management agency!

Americans have a much bigger appetite than the British! The leading role in this committee is, of course, the Americans.According to the Stabilization Fund Agreement, the American committee members should report all the committee's decisions and plans to the U.S. Treasury Department at any time.Only with the approval of the U.S. Treasury Secretary or the Federal Reserve can the committee use the fund for investment or re-lending business.Moreover, the Bank of China, the central bank and the Ping An Fund Committee must regularly report the use of funds to the U.S. Treasury Department for its "reference."

Let’s take a look at the list of Chinese members of the China-U.S.-British Equilibrium Fund Management Committee: Chen Guangfu, Xi Demao and Bei Zuyi.Chen Guangfu graduated from the Wharton School of Business at the University of Pennsylvania in his early years. He was a pillar of the Jiangsu-Zhejiang chaebol. His Shanghai Commercial Savings Bank operated completely in accordance with the standard model of the Western banking industry. It had a large number of banking transactions with American consortiums. He is the chairman of the "Rotary Club" of the elite association in the world [11], and an authentic insider of international bankers. He naturally served as the director of this committee.Xi Demao of Dongting Xi's family is officially the director of the Central Bank Business Bureau, but the power he really represents is the "Eight-Power Allied Forces" of foreign banks.Bei Zuyi was born in Han Yeping Company of the Sheng Xuanhuai family, and later joined the Bank of China, becoming Song Ziwen's confidant and the Song family's agent in the Pingzhun Fund.

From the composition list of this committee, it can be seen that this is a core organization under the leadership of international bankers, compradors and bureaucratic capital in close cooperation to control China's financial sovereignty. In order to support this institution, the U.S. government even decided to freeze all private funds of China and Japan in the U.S., followed by Britain and the Netherlands, which to a certain extent calmed the arbitrage trend in the market and eased the pressure on the foundation’s foreign exchange sales.U.S. Treasury Secretary Morgenthau spoke highly of the role of the Stabilization Fund, saying that it will help the Chinese government organize its finances and carry out economic warfare against the currency of the puppet regime. 【12】U.S. Ambassador to China Jensen even thought: "Without this loan, the Chongqing government would have collapsed." 【13】However, neither Morgenthau nor Jensen expressed a deeper meaning. That is, the Stabilization Fund is indeed a good thing. The good thing is that it can control China more deeply and use it better!