“Amalgam of currencies.” A Framework to Understand Chinese Monetary History, 1800-1949

Money and Monetary System in China in the 19th-20th Century: An Overview
Debin Ma (d.ma1@lse.ac.uk), Department of Economic History, London School of Economics (Great Britain)

URL: http://d.repec.org/n?u=RePEc:ehl:wpaper:41940&r=his

Abstract: This article provides an historical overview on the development of Chinese money and monetary regimes between about 1800 and 1950. It develops a simple conceptual framework based on the relative costs of assessing the inherent value of the currencies of different denomination. Based on this framework, I develop a historical narrative that ties important political and institutional changes with the evolving structural changes in the Chinese monetary regime marked by the vicissitudes in the use of copper, silver currencies and paper money in both the private and public financial sectors from the Opium War in mid-19th century to the end of the Civil War in the 1950s.

Review by Manuel Bautista González

Silver 8-reales of the Mexican Republic with Chinese chopmarks, made in Mexico and circulated in China. British Museum, CM 1920-9-7-343, Room 68: Money.

China was the first country to have coins, or the first along with Lydia in Asia Minor; the first to have paper currency, free banking (competitive issue of notes), and a government monopoly of paper currency; perhaps the first to have a kind of currency board (circa 1270); and a pioneer in some fairly sophisticated forms of exchange control. – Schuler (2012).

This paper, distributed by NEP-HIS on 2012-02-27, offers both a conceptual framework (based on politics and geography) and a historical overview of monies/money and the monetary system of China. As was the case in most of the world, diversity and concurrence of several monies prevailed in the Chinese monetary system well until the 20th century. A bimetallic, commodity standard prevailed, with silver bars named tael (or liang) as the main reference unit, convertible with a “fixed” price in official copper money, and copper cash coins strung together named tiao (or chuan), whose value fluctuated across regions, time and trades. Spanish American silver dollars also circulated widely (with chops of local assayers) since the 16th century (see an example above).

Imaginary units of account, denominated in either silver bars, copper cash or silver dollars were the effectual anchors of the system. The most successful units of account, the Kuping tael and the Haikwan tael, were used for the payment of direct and custom taxes across the empire, but even those standards were challenged across the territory. Currencies were traded with a “nearly infinite set of cross exchange rates” (Ma 2012, 5).

Ma offers a historical framework based on the “interaction of politics and geography” (Ma 2012, 6) to account for monetary plurality. The political arrangements from the Qing dinasty (1644-1911) and the geographical extension of the empire resulted in “a monetary system that perched on a nexus of contradictions that simultaneously harboured both uniformity and diversity, centralization and localization, governmental heavy-hand and laissez-faire, openness and insularity” (Ma 2012, 8).

The Chinese case allows us to see benefits in monetary diversity. Scholars have traditionally considered the multiplicity of currencies disadvantageous, for they raise transaction costs and prevent economic integration. Ma challenges this view, and understands monetary plurality as a rational response to prior monetary malfeasance: the author argues that the Chinese public was very aware of  the debasement temptation experienced by prior governments through the monetization of deficits. This record justified the existence of several currencies. Yes, transactions costs and exchange risk might have been significant, but the advantages of constantly assessing the value of currencies was “a safeguard against possible tempering motivated by seigniorage profits” resulting in inflation or hyperinflation (Ma 2012, 6).

Ceteris paribus, monetary evaluation should have occurred more frequently with large denomination money, since the cost of not evaluating the quality of say, silver bars or Spanish American dollars would have been quite significant given their wide acceptance as units of reserve and means of payment in long-distance trade circuits. The geographic extension of China made the central provision of an uniform means of payment an almost impossible task: henceforth, we find groups and networks shaping the monetary system on a local level through customs and “private rules” (Ma 2012, 8).

Ma then proceeds to recapitulate the monetary history of China in four periods, and offers some interesting stylized facts, some of which will be mentioned here:


The collapse of the Spanish American peso standard, the trade imbalances produced by rising opium imports and monetary disequilibrium amidst regions created growing tension in the Chinese economy. The banning of opium imports derived in war with Great Britain which ultimately caused China’s forced opening to the West.


The Taiping rebellion of the 1850s caused the Xianfeng administration to debase copper cash and issue inconvertible paper notes to finance public expenditures. The opening of China to the west brought merchant houses and banks providing deposits redeemable in silver. Chinese authorities seized the increase in external trade by means of an Administration of Maritime Customs. Foreigners soon controlled the agency, and tax revenue from customs was later used as collateral for debt emissions. Negotiations between the central and local authorities made possible the emergence of the Haikwan tael, the first uniform unit of account. After the Sino-Japanese treaty of Shimonoseki in 1896, two major developments affected the monetary system: the creation of the Imperial Bank of China (1896) and the first attempts to sustain a domestic silver standard by minting silver dollars.


The Republican era and the increased power of regional warlords coincided with the emergence of free banking. Some episodes of suspension of the convertibility of bank notes strained severely some banks in the interior, but the organized efforts of foreign and Chinese bankers mostly located in the emerging financial center of Shanghai helped ease the tensions in the payments network. Shanghai bankers would soon control the payments system: thus began the golden era of Chinese banking. The Chinese public increasingly accepted paper money and deposited money in the banks: “a system of competitive and differentiated money” arose, where the bills issued by the most reputed banks such as HSBC, the Chartered Bank, the Bank of China and the Bank of Communication achieved widespread use (Ma 2012, 13).
This period also saw widespread acceptance of the Yuan Shikai silver dollars, which displaced foreign coins in transactions and marked the convergence between specie and imaginary unit of account. This did not mean the unification of currency standards nor that of currencies, rather monetary diversity added transparency and helped disseminate information. Silver arbitrage provided liquidity where it was demanded, stimulating (albeit unintendedly) financial integration across regions. Money in China was slowly integrating its functions of units of account, means of payment and store of value.


As silver was the monetary anchor of the country, and the international price of the precious metal was falling, China was able to counteract the recessive forces operating in the rest of the world via the gold standard. However, this would not last long: with the repudiation of the gold standard in the 1930s and moreover after the passing of the Silver Purchase Act in the US in 1934, the monetary system experienced a deflationary bias.
Calls for change found echo in the monetary reform of 1935, an effort by the imperial government to move from top-down imposition to cooperation and coordination with the banking and financial sector. Chinese authorities oversaw the creation of agencies to institutionalize change: soon China had a Currency Reserve Board and a Central Bank. The reform adopted the first national legal tender, the fabi, fiduciary money with convertibility to a basket of currencies, not redeemable in silver, and issued by the Bank of China, the Bank of Communication and the newly created Central Bank.
After the Japanese invasion in 1937, the Chinese government resorted to inflationary issuing of paper money. Hyperinflation was the prelude to the end of Nationalist governments and the eruption of civil war, finally won by the Communists.

Debin Ma

Ma’s analysis of the Chinese case provides monetary historians of other eras and regions with key variables traditionally dismissed by economic analysis: national, comparative, transnational and global approaches would all benefit if careful attention is placed on the interplay of power and location through time. Ma’s account can be framed within the emergence of “territorially exclusive and homogeneous currency” among nations in the world, a process that runs parallel to that of nation-building (Helleiner 2003: 1). Monetary historians will profit from reading this article, as the sociology, the geography and even the anthropology of money provide insights that might help illuminate a past where there was no single money, but monies.


– British Museum, “Silver 8-reales of the Mexican Republic with Chinese chopmarks”, http://www.britishmuseum.org/explore/highlights/highlight_objects/cm/s/silver_8-reales_of_the_mexican.aspx (Consulted on October 9, 2012)

– Helleiner, Eric. The Making of National Money. Territorial Currencies in Historical Perspective. Ithaca, NY: Cornell University Press, 2003.

– Schuler, Kurt. Review of Peng Xinwei, A Monetary History of China. Bellingham, WA: Center for East Asian Studies, University of Western Washington, 1994.  Published by EH.Net (July 2012), http://eh.net/book_reviews/monetary-history-china (Consulted on October 9, 2012)

1 thought on ““Amalgam of currencies.” A Framework to Understand Chinese Monetary History, 1800-1949

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.