Chapter 79 "Price Standard" Beihai Coin: Financial Innovation in Shandong Base Area

In August 1945, one day after the victory of the Anti-Japanese War, in the Shandong base area, an American reporter was interviewing a cadre of the Eighth Route Army: American reporter: The currency in the Shandong base area has neither gold, silver nor foreign exchange for issuance. Why can the currency value and currency be maintained? Price stability?This is an incredible miracle! Eighth Route Army cadre: We have materials for distribution.You have a 40% gold reserve, and we have a 50% material reserve. (The American reporter looks at each other in puzzlement.) Cadre of the Eighth Route Army: For every 10,000 yuan of currency we issue, at least 5,000 yuan is used to purchase important materials such as grain, cotton, cotton cloth, and peanuts.If the price rises, we will sell these materials to return currency to stabilize prices.Conversely, if the price of goods falls, we will issue more currency and purchase materials.We use these necessities of life to prepare for the issuance of money, which is far superior to gold and silver, which cannot be eaten by the hungry or cold.

(The American reporter ponders while taking notes.) Cadre of the Eighth Route Army: After the realization of the paper currency system, the value represented by currency is determined by its circulation quantity.If the circulation increases by 10 times, if other conditions remain unchanged, the price will also increase by 10 times.The reason for the depreciation of legal currency and counterfeit currency is that they issue paper money indiscriminately.Our prices are relatively stable because we properly control the amount of money in circulation. American reporter: This reasoning is very interesting, please explain it carefully.

(It took the Eighth Route Army cadres to talk to the American reporter for 4 hours before he understood this truth.) American reporter: Do you think the United States can implement such a currency system? Cadre of the Eighth Route Army: The United States now holds 2/3 of the world's gold, and can also realize the gold standard system. 【8】 The cadres of the Eighth Route Army never expected that 30 years later, the United States would also be forced to abandon the gold standard, and would also use control of currency issuance to stabilize prices, which made Friedman's monetarism theory a prominent one in the West.But his theory was decades later than the currency practice in the Shandong base area.When the cadres of the Eighth Route Army were interviewed, Friedman was still studying for a doctorate at the university. He was a "complete Keynesian" and his understanding of currency was far from forming a theory.

At this time, the monetary practice of the Communist Party of China is far more avant-garde than the Western monetary theory.More importantly, the feeling of hands-on practice is not at the same level as theoretical discussions on paper.This is like an MBA professor in a university talking about how an enterprise should be managed. However, no matter how great his knowledge is, it cannot be compared with the management practice of Wang Yongqing or Li Ka-shing. After the reform and opening up, "Friedmans" were enshrined as gods for a time, and they underestimated the great achievements they created with currency practice, and lost themselves in the charming aura of various Western theories, completely deviated from the "practice is the only criterion for testing truth" "The highest principle of "is really embarrassing!Since learning the currency thinking of the United States, the real purchasing power of the renminbi has shrunk severely in the past 30 years. The enviable "super rich" 10,000-yuan households in the early 1980s have now become the standard for China's "low-income households".

The American Journalist's True Identity: The Economist. Cadres of the Eighth Route Army: Xue Muqiao, elementary school culture, "graduated" from the "University" of Shanghai Prison, director of the Industrial and Commercial Bureau of Shandong base area and monetary policy host, one of the founders of the new China's currency system. What kind of currency did Xue Muqiao come up with, so that American economists come to China all the way like exploring the secrets of nuclear weapons? It turned out that the Shandong base area began to issue "Beihai currency" as a subsidiary currency of the legal currency in 1938. Due to the lack of experience in issuing banknotes in the base area, the credibility of the Beihai currency was not as good as the legal currency at first.

At that time, the legal currency was linked to the British pound and the US dollar, and it was very strong in the areas ruled by various regimes.Not only did the bases hold a large amount of legal currency to ensure the stability of the local currency, but the Japanese and puppet regimes also issued counterfeit currency in the occupied areas and exchanged it for legal currency in exchange for foreign exchange or purchase of materials. After the outbreak of the Pacific War, Japan confiscated the financial institutions of Britain and the United States in China, and could no longer use legal currency to obtain foreign exchange.So they changed their tactics, using legal currency to fight against legal currency, and sent billions of legal currency in the Japanese and puppet-controlled areas to the Kuomintang-ruled areas and anti-Japanese base areas to set up shopping materials.In 1942 alone, several hundred million yuan of French currency flowed into the Shandong base area.This not only caused a large amount of materials to flow to enemy-occupied areas, but also caused the amount of legal currency in the base area to far exceed market demand. The purchasing power of legal currency dropped sharply, and the associated Beihai currency also depreciated rapidly, and inflation intensified.This is the same reason as the influx of U.S. dollars into China today, while "arbitrage buying" a large number of Chinese products, resources and raw materials, it also led to excessive issuance of RMB, which led to the decline in the purchasing power of the RMB and the rise in prices.

The result of rapid inflation is that in a country that traditionally believes in "food is paramount to the people", the price of food in 1943 was 25 times that of 1941! At the beginning of 1943, when the situation was critical, Xue Muqiao happened to pass by the Shandong base area to Yan'an, and was "detained" by the leaders of the base area to help the base area carry out currency struggle against the enemy. At that time, the government of the base area did not understand the laws of currency and prices, and allowed legal currency and Beihai currency to circulate at the same time, but prohibited the counterfeit currency issued by the Japanese and puppet governments.On the black market in the occupied areas, counterfeit currency is higher than legal currency.In the base area, the French currency is higher than the Beihai currency.The Shandong base area used administrative means to suppress the ratio of legal currency, announcing that the Beihai currency would be exchanged for legal currency at a ratio of 1:2, but it did not work at all.

After a lot of investigation and research, Xue Muqiao proposed that the only way to stabilize the value of the Beihai currency and the price of the base area is to expel the legal currency and make the Beihai currency the only currency in circulation in the base area, enjoying the exclusive right to issue currency.The method is to use the Beihai currency to crowd out and redeem legal currency, use the redeemed legal currency to arbitrage materials from enemy-occupied areas, and use these materials to support Beihai currency.When the price rises, the government sells goods and withdraws money, and the price will naturally fall.

It worked.After the expulsion of legal currency, prices did fall back, but new problems emerged.Since the number of Beihai Coins cannot meet the market circulation demand, prices have dropped excessively.At this time, the base government did not know that it should issue more currency to stabilize prices, but instead sold materials to return currency. It was also in time for the agricultural product purchase season, and farmers were eager to sell, resulting in a sharp drop in prices.Although the Bureau of Industry and Commerce immediately deployed additional currency issuance, due to the weak banknote printing power, the opportunity to purchase agricultural products was missed.The result of the superposition of the three is that the price has fallen by half compared to when the fiat currency was stopped.When the spring famine comes next year, the government does not have enough agricultural products to return to the "late" additional currency, resulting in a sharp rise in prices.

Xue Muqiao and his colleagues realized that in the rural economy, there are certain objective laws in the seasonality of currency issuance and prices: additional currency is issued in autumn and winter to purchase agricultural products, and agricultural products are sold in spring to return currency. Only in this way can prices be basically stable, and stable prices are precisely The symbol of monetary credit is the measure of the success of the monetary system.It is in such monetary practice that they created monetary and financial innovations prepared for issuance with materials! Xue Muqiao later recalled this period of history and mentioned: "Half of the currency issued by the bank must be handed over to the newly established Bureau of Industry and Commerce for the purchase of various agricultural products, which can be processed at any time to stabilize prices. The currency we issue does not use gold, Silver and foreign exchange reserves are made of materials. With the fluctuation of prices, the industrial and commercial bureaus can handle materials at any time and adjust the amount of money in circulation to maintain the stability of currency values ​​and prices. At that time, all capitalist countries implemented the gold standard system. There will be no inflation problem. Our understanding of the regularity obtained from practice may be a new discovery in the history of monetary theory.”【9】

This currency system is called "price standard system" according to the base, which means "our currency does not maintain a certain relationship with gold and silver, nor does it maintain a certain relationship with legal currency or counterfeit banknotes. Our local currency is linked to prices, which is based on the price index ( It is not the index of a certain commodity, but the general index of several important commodities) as the standard for us to determine the value of the currency” [10]. After completing the monetary struggle of "expelling the legal currency and stabilizing prices", the base area started a trade struggle, and the industrial and commercial bureau of the base area became the main trader.