Historical Sketch

China's state tradition of dates to about the 20th century BC. The first unification of the empire took place in 221 BC, when the ruler of the state of Qin styled himself "emperor (huángdì)" after he had conquered all the neighbouring states. In 1644, the Manchurian Qing dynasty took power and retained it until the early 20th century. In the 1911 revolution, the monarchy was overthrown. The republican governments did not manage to get the country under control, so that a long period of instability followed, during which local rulers (so-called "warlords") established themselves in many provinces. The central government in Beijing was challenged by a counter-government of the Nationalist (Guomindang) Party in Nanjing. By 1927, the Nationalists had won the power struggle and asserted power over large parts of China. In the early 1930s, another civil war broke out as Communist groups resisted the Nanjing Nationalist government and established the Chinese Soviet Republic in southern and central China. In late 1934, the central government succeeded in pushing back the Communists and crushing the Soviet Republic. In the "Long March", the Communists retreated to northern Shănxī, where they could regain strength. China was divided in multiple ways at the time, between Nationalists and Communists and Warlord territories in the outlying parts which resisted both movements.

Another division began in the early 1930s when Japan began with the occupation of mainland China from the north. In 1931, Japan invaded Manchuria and established a nominally independent state of Manchukuo, headed by the former Chinese emperor, but under direct Japanese control. In the mid-1930s, gradually further Chinese territories were conquered and put under the "authority" of puppet governments, such as the Inner Mongolian Federation (Chaha'er, Suiyuan, North Shānxi) in 1936-1938, the "Autonomous Anti-Comintern Government" of East Hebei in 1935-1937, the "Taoist City Government of Shanghai" in 1937-1938, the "Provisional Government of China" (West Hebei, Shandong, South Shānxi, He'nan, North Jiangsu) in 1937-1938, and the "Reformed Government of China" (South Jiangsu, Zhejiang, Anhui, Nanjing City) in 1937-1938. A first consolidation in 1938 left two territories as the "Provisional Government" absorbed Inner Mongolia and East Hebei and Shanghai was put under the "Reformed Government". Two years later, in 1940, the "Reorganized National Government of China" was established with authority over all occupied territories.

The war of resistance against occupation was carried on by both Communists and Nationalist continued until the Japanese surrender in August 1945. After the Japanese withdrawal, the two groups quickly turned against each other, and the civil war began again. In late 1948, the Communists finally gained the upper hand and began driving out the Nationalists, reducing them to a few strongholds in the cities of Guangzhou and Chongqing until mid-1949. In October 1949, the People's Republic of China was proclaimed, and the defeated Nationalists retreated to the island of Taiwan, where they established a counter-government as Republic of China. The outlying territories of Manchuria and Xinjiang also came under central government rule. Last followed Tibet in 1950, where after the 1911 Chinese revolution an independent state had been created.

Monetary History Overview

In the 13th century, the Yuan dynasty established the silver standard in China. For trade, silver ingots were produced, the weight of which was measured in Taels ("liăng"), internationally referred to as Sycee ("yuánbǎo"). For small transactions, the traditional Cash ("wén"), cast copper coins with a square hole that had been introduced in ancient times and standardized by the first Qin emperor in the 3rd century BC. Between the 7th century and the introduction of milled coinage in early 20th century, the Cash remained practically unchanged. They did not have a fixed value against the silver standard although nominally 1000 went on a Tael of fine silver. Coins strings of 1000 Cash could replace silver bullion in larger transactions. There was no country-wide standardization of the weights and ingots. All transactions occurred at market conditions. In the 16th century, China had opened up for trade and, as a net exporter, saw an inflow of foreign silver in the form of coins. The Spanish Dollar became well established also when China reduced foreign contacts again during the Qing dynasty. The Dollars were not used as coins but ingots of stable weight and fineness in the silver bullion trade, where they commanded premiums over the local ingots. After the forced re-opening of the Chinese market in the mid-19th century, more and more Spanish Dollars and similar foreign coins flew in and dominated the market. On the initiative of the Viceroy in Guangdong, China started her own production of so-called "Dragon Dollars" to compete with the foreign coins. The products of the various provincial and central mints added to the multitude of circulating silver, rather than displacing the foreign coinage. Neither the Chinese nor foreign silver Dollars were ever used as coins, they were participating in the silver bullion market. In the early 1900s, the provincial mints also began issuing copper coins for replacement the ancient Cash coins and coin strings.

In 1905, an attempt was made to displace the silver bullion trade by a new silver coinage based on "Currency Tael". But such coins were not accepted in the market and could not displace the ingots and the Dollar coins. Still in 1905, the Imperial Bank, a partially state-owned commercial bank, began operations including paper money issuance. Various provincial governments and several foreign banks had started paper money issuance already a couple of years earlier. A first step towards introducing a currency with coins to be used as such came briefly before the end of the monarchy. The imperial decree of May 1910 created the 1st Chinese Dollar as a silver coin produced only by central mints, and the Imperial Bank was given the monopoly of paper money issuance. The fall of the monarchy in 1911 prevented the full implementation of the reform, in particular the free paper money issuance continued. In January 1914, another currency law was passed. The issuance of standardized silver Dollar coins could now be enforced, however, they could not be produced in full weight since the fineness of the silver collected for re-coinage was lower than projected. So, the new Dollar coins got out 9% below legal standard. The state-owned Bank of China succeeded the Imperial Bank, but a monopoly for paper money issuance was no longer foreseen. The Chinese central government quickly lost control over the country. This led to a fragmentation of the currency areas in which local banks issued paper money without control, sometimes augmented by provincial paper money and coin issuance. In Manchuria the local bank defied the central government regulations, and the provincial government of Xinjiang issued paper money and coins in a local currency. The subsequent civil war between Nationalists and Communists created a proliferation of local money issuance on the latter side, with a multitude of workers' and peasants' banks in the areas under their control. The Japanese invasion further fractured the monetary space since they also sponsored local banks to issue paper money and coins. The semi-independent Manchuria created its own currency, while in the rest of occupied Chinese mainland the Japanese never managed to consolidate the currency. Until their defeat in 1945, three different variants of occupation currencies co-existed. In the early 1930, the Central government meanwhile reformed the monetary situation in the territories under its control. The silver bullion trade that had dominated Chinese economy throughout centuries was finally abolished in March 1933, and all titles denominated in Tael bullion had to be converted within a month. New silver coins were issued into which the remaining circulating ingots had to be exchanged, unless they were melted down and exported. This was only the preparation for a more radical change. In November 1935, the central government carried out a comprehensive monetary reform, referred to as "legal tender (fǎbì)" reform. The silver currency was abolished, and the 2nd Chinese Dollar was pegged to the Pound Sterling. All silver coins were confiscated, provincial coinage and free paper money issuance were ended. Only four state-controlled commercial banks were granted the authority to issue of paper money under the lead of the Guangzhou based Central Bank of China, which had taken over the central bank functions from the Beijing based Bank of China in 1928. In 1942, the Central Bank obtained the paper money monopoly. The ongoing war against the Japanese occupation, together with the civil war between Nationalists and Communists led to a constant over-expenditure among all the parties involved. During 1942, the central government currency had to be devalued by 80% and subsequently turned inflationary. The three Japanese occupation currencies followed suit and had to give up their peg to the Japanese Yen. The Manchurian currency became inflationary, as well, however to a lesser extent. The Communist sponsored banks joined the inflationary surge at different degrees, while the Xinjiang local currency remained stable for a little longer, but then saw the worst of all hyperinflations among the various currencies.

After the Japanese occupation had ended, the Chinese monetary area consisted of five parts: (1) Nationalist China with a single currency; (2) Communist China with a multitude of money issuing banks, but no uniform currency; (3) the former Japanese occupation territory with three currency variants; as well as (4) Manchuria, (5) Xinjiang, and (6) Tibet with their local currencies each. The Japanese occupation currencies were eliminated in November 1945 by the Nationalists. The Manchurian currency continued in the Nationalist territory, after November 1945 issued by a local branch of the Central Bank of China, rather than the Japan-sponsored Bank of Manchukuo. In the Communist parts of Manchuria, one of their money issuing banks took over. Otherwise, the monetary situation remained unchanged, and inflation surged everywhere. In 1948, both the Nationalists and the Communists took steps to sanitize the monetary situation. The Nationalist currency had completely broken down during the year and turned hyper-inflationary as the government printed money without limits. In August 1948, the government carried out a currency reform in the areas under its control. Six zeros were cut, and the new 3rd Chinese (Gold) Dollar was supposed to be stable through a gold peg. This could, however be maintained for just three months. After that, hyperinflation surged again as the uncontrolled issuance of money went on. The Communists unified their currency area in December 1948. Three money issuing banks were merged into the People's Bank of China. The various local paper moneys were withdrawn and exchanged at different rates into the 1st Chinese (Renminbi) Yuan, in most cases by cutting two or three zeros. In the Communist controlled areas, inflation had never reached the Nationalist level. The currency was subsequently introduced without delay in all territories that came under Communist control, such as Beijing in February 1949 and Shanghai in May. The Nationalist control was further reduced to areas in Sichuan, Guangdong, and Fujian provinces. When the final Communist victory was already in sight, the Nationalist government carried out a last currency reform in July 1949. At that time, just the area around the cities of Guangzhou, Chengdu and Chongqing had remained under its control. The unprecedented hyper-inflation since November 1948 led to eight zeros being cut this time, and stabilization of the 4th Chinese (Silver) Dollar was to be enforced by a peg to silver specie. The re-issuance of silver Dollar coins of 1933 could only be carried out on a small scale in parts of Sichuan province since Guangzhou fell to the Communists already in October. This last currency reform of the Nationalists failed, and the Silver Dollar was just a multiple of the Gold Dollar. By mid-December 1949, the nationalists lost their last strongholds and withdrew to the island of Taiwan. When taking over, the Communists did not recognize the Silver Dollar notes. Their redemption was, however, tolerated to avoid hardship among the population. By the end of 1949, the Communist monetary area comprised most of mainland China, except for remote territories in the very south, were the Nationalist currency was to be redeemed until early 1950. In Xinjiang, hyper-inflation had been stopped by a currency reform following the Nationalist government model of 1949. Here the stabilization through the peg to silver specie actually worked, even the re-introduction of circulating silver coins was successful. The Xinjiang currency was withdrawn in October 1951. The currency of Tibet, which was annexed in 1950, was not touched for the moment due to missing infrastructure for carrying out an exchange. In late 1950, the Renminbi Yuan had stabilized against the US Dollar. Four years later, in March 1955, the inflationary traces were eliminated. A currency reform eliminated four zeros, and the 2nd Chinese (Renminbi) Yuan became the new currency. In 1959, finally, the Chinese currency was introduced in Tibet so that the fragmentation of the monetary area had come to an end. The peg to the US Dollar that had been introduced before the reform was carried over and remained almost unchanged for two decades. In 1974, the Renminbi Yuan got floated and depreciated during the 1980 and 1990 economic reforms. In 1995, the currency got devalued by about 30%, since then the government has kept the rate against the US Dollar stable, allowing for only a modest appreciation.

China joined the International Monetary Fund (IMF) on 27.12.1945 as a founding member. After the proclamation of the People's Republic of China and the Republic of China (on the island of Taiwan) in late 1949, the seat was held by the latter. On 17.04.1980, the People's Republic took over the Chinese IMF membership.

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