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On Chinese currency, preliminary remarks about the monetary reform in China

March 28, 2010

INTRODUCTION

Great difficulty was frequently experienced in the course of this work in clearly distinguishing between different notions which had to be expressed by means of one and the same term in English. I have attempted to solve this difficulty by printing a genus with a small letter and a species with a capital letter. Thus the “management” is the way a bank is managed and the “Management” the Board of Managers; the “central bank” is used when speaking of a bank of issue in general and the “Central Bank” (or only the “Bank”) whenever the “Central Bank of China” in particular is referred to.

In my previous work “On Chinese Currency”, which was published in July 191 2, I touched upon the principal points which are to be kept in mind in any future reform of the system of currency in China. In this volume, which will treat more particularly of “The Banking Problem” and which is to be considered as a continuation of the first volume, I shall, in order to distinguish it, henceforth refer to the book published in 19 1 2 as: “On Chinese Currency I”.

In that book I discussed in the first place those questions which immediately arise on the introduction of a change of the actual system of currency; at the same time however I pointed out the very close connection between the currency and banking systems of a country, and I emphasized the fact that a decision to reform the system of currency must inevitably involve the adoption of general regulations for the bank of issue, and that moreover the selection of a banking system should, if we probe the matter, really precede a currency reform, particularly as the Central Bank to be eventually established would have to play an important part in the organization of a currency reform. I have therefore briefly indicated the formation and method of working of such a Central Bank in China when such shall have been established there.

On being again honoured by a request from the Chinese Government to assist it, in the capacity of Honorary Adviser, in its efforts to reform the prevailing conditions in currency and banking, and in accordance with the special request to draw up a scheme for a Central Bank, I have attempted in the following pages, under the title of “On Chinese Currency, Vol. II, The Banking Problem”, to indicate the general lines upon which, in my opinion, such a central body, particularly taking into consideration the conditions in China, should be formed and conducted. In the method of treatment these pages follow as much as possible the lines of my first volume “On Chinese Currency” so that I have again limited myself to the leading principles and have avoided all details as far as possible. The details can be better judged when putting those leading principles into practice when there will have to be faced the problems of different local conditions in such a large country as China, where there are such great racial differences, such variations in the nature of the country, and where the standard of living, local labour and trade conditions of the masses and even the general characteristics of the people are so widely divergent in the various component parts. In applying those leading principles these local differences will have to be taken into account.

In my previous work I abstained entirely from quoting the opinion of others because my pamphlet was rather a collection of principles for the use of China, the correctness of which I was eventually prepared to prove. In this book however, on questions of principle, I have purposely quoted the opinion of some of the greatest authorities in various countries, in order to show still more clearly how men of international repute in economics have gradually come to agree fully on the various main points, although these generally accepted principles are still being repeatedly infringed in practice. As it is not at all impossible that certain voices will be raised, not only in China but also elsewhere, urging measures contradictory to those principles, these verdicts may serve as a serious warning, all the more weighty for being international.

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