Yan, Xun
(2015)
In search of power and credibility: essays on Chinese monetary history (1851-1945).
PhD thesis, London School of Economics and Political Science.
Abstract
In many respects, the mid-nineteenth century marks the beginning of China’s modern history: the Opium War (1839-42) and domestic turbulence compelled Chinese statesmen to realise that the old state apparatus was no longer able to cope with the changing world. However the pursuit of greater state capacity collided with a feeble ability to raise taxes and an ancient monetary system far from being unified. How did the government carry out even limited alterations to the monetary system in times of urgent fiscal need? And how did the monetary evolution proceed with these partial reforms? This thesis focuses on the movement of the Chinese monetary system from a traditional metallic system to a modern fiat money system, and discusses three issues during different phases of the transition.
The first part re-examines the case of ‘Xianfeng inflation’ (1853-61) when the government attempted to issue new monies to resolve the crisis in public finances. It points out that under the traditional commodity money system the government had little impact on money supply, and that the so-called inflation was an outcome of coinage debasement combined with a banking crisis resulting from the debt default. The second part focuses on the introduction of modern coinage minted with steam power around the 1900s, enabling the government to supply credible monies that no longer relied on their intrinsic metallic values. It argues that this technological innovation allowed the Chinese government for the first time to implement effective monetary manipulation and exert an impact on the rural economy. The third part investigates the behaviour of money holders during a war. It compares the velocities of paper notes issued in Free China and Occupied China during the Second World War (1937-45) and demonstrates that the credibility of the monies depends most on people’s expectations about the survival of the regime.
The transition from a traditional to a modern currency system is a search for a new monetary credibility that had formerly lain within the value of the metal. The evolution of the Chinese monetary system illustrates vividly the constant state struggle between monetary credibility – via coercion, technology, or legitimacy – and its pocket gain, when the fiscal soundness is at stake.
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