The Silver Crisis And The Reform Of Chinese Monetary System

Silver had been the most important money in Chinese monetary history, ever since it took the role as the prominent money in the Ming dynasty in terms of economy and transaction, silver had played an important history role in the economy development, politics stability and diplomatic affairs of China. Although China did not produce silver by itself, the silver of other places of the world flowed into China in large quantities due to its need of large amount of silver as the use of main currency, and the favorable balance of trade as a result of the self-sufficient Chinese economy which was characterized by small-scale agriculture economy. Therefore, China was the marginal purchaser of the world silver market at that time. After the Opium War of 1840-42, as a result of China being obliged to sign a series of unequal treaties that ceded territory and paid indemnity to the western countries, as well as of the fact that the politics and economy of China falling into decay with each passing day, China, that had been the biggest silver imported country in the world, began a great deal of silver outflow, which resulted in that China which had once been the marginal purchaser of the world silver market became the purchaser of that, consequently the price of silver as Chinese currency was determined by the international silver price, therefore significant changes took place in the monetary system, financial market and national economy of China.After the event of Revolution of 1911, the interim government of the Republic of China announced to establish in Nanjing in January of 1912. One of the most significant issues that the lately established republic government faced was how to restructure the currency system which was disordered and multifarious. At that time not only the silver dollars that were made in China were in circulation on the local market, but also other silver dollars made by foreign countries like Mexico or Japan etc. were, as well as the silver dollars that had been cast by the former Qing Dynasty, the currency categories were miscellaneous, as well as those differed in fineness with each other, which made the situation more confusing and complicated. The government of the Northern Warlords entered upon the reform of the currency system In 1914 by announcing the national currency regulation that established silver as the standard of the currency system of China, which made the Chinese modern monetary system reached temporarily formal unity. Although in terms of the national currencyregulation silver dollar was prescribed as the standard of Chinese currency system, the taels of silver that had been used in China for hundreds of years still remained in circulation, therefore the confusing currency condition, in which both the silver dollar and the taels of silver were used, did not change.To the end of 19~th century, nearly all main western capitalist countries exercised the gold standard currency system, after India gave up the silver standard system in 1926, China became the unique country in the world that used silver as its national currency. Because of the dissimilarity of currency standards between China's and other countries', China suffered a huge sum of loss during the process of converting silver into gold equivalence in such monetary transactions as compensating foreign loan and foreign trade and so on, as well as suffered the confusion and complexity brought about by the currency condition in which both the silver dollar and the taels of silver were used, consequently China found itself in an unequal position in foreign trade Therefore there was a lot of appeal to discard the taels of silver and to unify the currency system by silver dollar. In order to resolve the predicament that Chinese economy faced caused by its confusing monetary system, the government of Kuomintang formally gave effect to the regulation of discarding the taels of silver and unifying the currency system by silver dollar in March, 1933, and issued the order to the whole nation for enforcement of that regulation on April 6~th, 1933...