The United States is in a position to command the lion’s share of China’s trade after the country settles to its normal state. But any country that controls the lion’s share of China’s trade will pay the bulk of the Chinese war debt.
On Valentine Day the Chinese dollar, in terms of the U. S. dollar, dropped to 19,500 Chinese dollars for one of our dollars. There is something there to think about. Depreciation works in a thousand different ways.
A good while before the war I lived for a year with my wife, two children, and an amah, or nurse, at the Palace Hotel on Nanking Road near the Bund in Shanghai. I asked the British hotel manager if I could come back and get the same accommodations next year at the same price. He said “yes,” and wrote me a letter to that effect. During the intervening time the bottom dropped out of the Chinese dollar, and so I lived at the hotel, during the entire stay of the fleet, for almost nothing.
The United States occupies an excellent position from which to command the lion’s share of China’s trade after affairs in that country revert to a normal condition. The present turmoil there differs in one important particular from the strife that has marked nearly every generation for centuries; and that is, the intense feeling against foreigners which has resulted in boycotts and direct attacks on the nationals of other countries and their property. The removing of the anti-foreign sentiment would leave the country in almost a normal condition of military activity.
When military activity in China is not on too large a scale, the life of the people goes on normally and foreign trade continues and forever increases. Almost any student of Chinese affairs will concede that a settlement of China’s major troubles will be effected in the next two or three generations, and all sorts of measures have been advocated with a view toward hurrying that settlement. One of the greatest obstacles in China’s path of progress, and one which is not often mentioned, is her currency system—or rather her entire lack of a currency system.
If China’s method of handling her finances in general and her monetary system in particular were adopted in the United States, it is safe to say that all business would immediately fall into a state of collapse. Nevertheless, for us to carry on our trade with China it is necessary that we have some knowledge of the conditions which now exist with regard to Chinese currency.
A traveler landing in China for the first time straightway becomes involved in the intricacies of Chinese money. Landing for the second, third, or thirtieth time it is the same. Whether he takes a trip from Shanghai to Chungking, fifteen hundred miles up the Yangtze River, or merely takes a ricksha ride from one steamer dock to another, he is sure to get mixed up in an argument about money—and this regardless of whether he pays too much or too little. The Chinese does the talking and covers the field of his argument rapidly and repeatedly.
The trouble is twofold: first, the Chinese method of bargain and purchase; and second, the medium of exchange in which the customer pays his bill. It is the latter we expect to deal with—Chinese money—from which comes the term “Chinese Puzzle,” now in universal use. This, however, is not going to be a discussion of Chinese finance or monetary systems, but rather a description of the various kinds of money the traveler of today may expect to have to deal with along the China coast.
It will come not amiss to preface the description with a bird’s-eye view of Chinese currency as a whole, omitting the names of coins, weights, provinces and so on, in much the same way as an airplane view of a country differs from the map.
Wagel, a student of the subject a number of years ago, said, “It is difficult to designate the position of currency in China at any period, under any of the heads known to the experts on currency. At no time has there been anything approaching or corresponding to a system.” M. Passeri, who compiled the Commercial Handbook of China, says, “The currency of China is chaotic; it forms the most complicated mixture of heterogeneous mediums of exchange, from a weight to a coin, that has ever existed in any one country.”
Yet when we come down to earth and go through the streets of Peking, Shanghai, or Tsingtao we see people paying for their purchases in copper coins, silver coins, and bank notes, and the dealer looks perfectly satisfied. The purchaser generally looks mystified.
The Chinese have used, at one time or another, hundreds of different articles for money. They have used bronze and brass in the shape of shields, rings, tablets, and seals. There was a period when implements such as knives and spades made of bronze were given in payment for purchases, and another period when bronze crickets and grasshoppers were used. At one time tortoise-shell was a favorite medium of exchange, and as early as two centuries before Christ the use of precious stones for money was prohibited by edict. Wheat, rice, and silk were used in many of the provinces, and about the beginning of the Christian era it was recommended that these articles be adopted for universal use in lieu of metal coins, which were everywhere being counterfeited. White metal, as money, came into use a century before the birth of Christ; an issue of lead coins was made in the sixth century, A.D., and iron coins were minted at several periods, in 206 B.C., 23 B.C., and 523 A.D., and an iron coin was actually put into circulation by royal edict during the T’aiping rebellion of 1851-1864, A.D.
Of the millions of Chinese the great majority, particularly in the central and western provinces, deal almost exclusively with copper coins. The copper, brass, or bronze coin stamped with a square hole in the center and known as “cash” was in general use in China for many centuries, the original issue dating about forty-two hundred years ago. At first these coins were irregular in shape and remained so until the seventh century B.C., when they were moulded round. It was many centuries before the stamping of “cash” was begun. Modern copper coins are replacing the old “cash” in practically every part of China, and it is certain that “cash” will never again be seriously considered in the field of coinage.
The retail business in the coast and river provinces is now carried on mainly in terms of dollars. The Chinese dollar is about one half the value of the United States dollar and is divided into various forms of subsidiary silver and paper money. A large amount of wholesale trade, most professional services, all customs dues, and practically all construction contracts are in terms of taels.
The tael is a Chinese ounce of silver, and its value varies according to the fineness of silver and the variation in grains to the ounce in different localities. The tael is not coined money but is simply what might be called a bookkeeping term to measure value. A physician will render his bill in taels but he is paid in dollars. The word tael is said to have been derived from the Indian word tola, which is a weight of about 180 grains. The various Chinese taels vary in weight from the Amoy tael of 516 grains to the Haikwan tael of 583.3 grains.
There are a hundred and seventy different kinds of taels known in China, but comparatively few of them are in use. Let the casual traveler in China give thanks that he is seldom concerned with the tael, and then only in his payment of customs dues and doctor bills.
While on the subject, it may be well to mention sycee, which the tourist often hears of but seldom sees. Sycee is bullion silver of different weights and shapes, the most commonly known being the silver “shoe.” The molten silver is put into an oblong mould, and while the silver is yet in a molten state the mould is tipped first one end and then the other, allowing the silver to run up the ends of the mould. When the metal is removed after becoming hard, the shape resembles that of a cork helmet with a flattened top. The smooth upper surface, after the silver has cooled, resembles the appearance of silk, and it is said that the name “sycee” is derived from this fact, the word being a corruption of the Chinese sai ssu, which means “fine silk.”
Most of the sycee is made from silver bars imported directly or indirectly from the United States and Mexico It is used in the settlement of local trade balances and is supplied to the mints for coinage purposes. The “shoes” have a weight usually of about fifty taels.
We come now to the matter of the “dollar.” It is fortunate that this word is coming to mean more and more a measure of value with fairly well defined limits. There have been many kinds of dollars used in China. The Spanish and Portuguese introduced the dollar into China during the 17th century, and by the year 1800 most of the foreign trade with China was being carried on with the Spanish “Carolus” dollar as the standard. South American coins from Bolivia, Chili, and Peru have at times had considerable circulation, while the American and British trade dollars also had their periods of popularity.
The dollar with which the traveler has to deal is called the “Mex dollar” from the Mexican coins which, for years, have had a wide circulation in China. The term “Mex” has come into such general use as to indicate in connection with almost anything the relation of one half to one. The Mexican dollars were first brought into China during the decade 1850-1860. The actual Mexican coins, though many are still seen in circulation, are being gradually retired because of their higher content of fine silver over the Chinese “Yuan” dollar which circulates at exactly the same value.
The Yuan silver dollar is replacing or has already replaced all foreign coins circulated in China, as well as the Chinese “dragon dollar” minted during the Empire, though of the last there are still seen a few in use.
The Chinese “dragon dollar,” which is still seen in diminishing numbers in all provinces, was first minted at the Canton mint in the year 1889 and later at Tientsin and other places. The government exercised no control over the work of these mints, and consequently dragon dollars of different degrees of fineness were turned out. Each mint stamped on the coin the name of the province in which the mint was located. This restricted the circulation of these dollars between the provinces concerned. At the present time they are generally accepted, though often at a small discount.
The notes issued by the native and foreign banks are in terms of Yuan dollars. The notes circulate at par at the place of issue, and sometimes at distant places, but the notes issued in one city are almost always discounted in another. The notes of the Shanghai branch of even the foreign banks suffer a discount when presented at the Peking or Canton branches of the same banks. The notes of some of the smaller native banks are not accepted at all outside the place of issue. The author once offered a money changer in Peking a note on a reliable native bank of Chefoo and he would accept it only at a discount of forty percent, though it could be exchanged in Chefoo for its face value in silver dollars.
From time to time there are bank failures due to the issues of notes in amounts beyond the bank’s capacity for redeeming them, and the notes of such banks have been known to circulate at par for some time after the failure and to continue to circulate in ever diminishing quantities at various rates of discount—the last holder being the loser.
The paper currency circulated by military leaders does not generally come into the hands of foreigners and there are no issues of paper currency by the central government as such.
At this point it will be seen that the foreign traveller in China may, for all practical purposes, discard from his calculations all kinds of money except the Mex or Yuan dollar. He will pay his expenses and do his shopping with the silver dollar, with bank notes of various denominations in terms of the silver dollar, and with the silver and copper coins subsidiary to the silver dollar. He is not likely to see any gold coins unless he carries them into China with him or makes a special purchase of them at a bank, for they do not circulate. Gold coins will be readily accepted, but they do not as a rule get back into trade channels except as jewelry or bullion.
In mentioning the silver and copper coins subsidiary to the silver dollar we open up the field of what is called “small money.” Small money is the greatest obstacle the foreigner has to contend with in his lesser financial dealings with the Chinese. An explanation of the reasons for these difficulties is comparatively simple.
When the dragon dollar was first coined in 1889 for the purpose of forcing the Mexican dollar out of circulation, it was of a fineness of .900. The following year subsidiary silver was coined at Canton with a fineness of .820. There was a great demand for these smaller coins. The vast majority of the Chinese counted their wealth in terms of cash or copper cents, and the dollar was too large a unit to be handled conveniently by them. The possession of several silver dollars indicated, and probably still indicates, a position of affluence far above the average. To meet the demand the silver ten and twenty cent pieces were turned out in great quantities. The provincial authorities promptly saw the chance of making big profits in minting these coins due to the difference between the face value and the intrinsic value. Mints sprang up in every province, and there was soon an enormous over-production of subsidiary silver coins. Edward Kann says, in his “Currencies of China,” that “certain provinces offered their mint for rent to the highest bidder, who worked practically uncontrolled; that other provinces placed their mints at the disposal of military chiefs who were bent on paying their armies with the profits from minting operations.” The result was that the small coins, due to the over-production, soon began to circulate at a discount. The fine silver content of the small coins was reduced secretly by the authorities to conform to the percentage of depreciation on account of excess of the supply, but as soon as this was
learned there was a further drop in the market price of the coins.
It was about the beginning of the present century that the mints first started to debase the coins they issued; and this has been the crying evil of all new coinages. The same is true of the copper cent, which was inscribed “one one-hundredth of a dollar” and actually circulated for a time at as low as eighty- eight to a dollar. It was originally ninety-five percent copper and five percent spelter, while now, as a result of gradual debasement, it contains about fifty percent copper and fifty percent spelter. Also there was active competition between the mints to earn the profits on these coins. From the year 1900, when they were first coined in Kwangtung Province, to 1917 over thirty-two billion had been issued by the various mints.
The coinage business now flourishes in every province of China. There were thirty- one mints (in 1926) in different degrees of operation. They stretch from the Mongolian frontier at Kalgan to Canton, and from Soochow to Szechuan.
In 1914 when the Yuan dollar was first issued and was proclaimed the standard dollar in the currency regulations of the Government, it was provided that there should be fifty, twenty-five, and ten cent coins. This regulation was not carried out until 1917, and then the coins minted were fifty, twenty, and ten cent pieces. They were to be exchanged on a decimal basis: two halves, five twenties, or ten dimes being equal to one dollar. The fifty cent piece weighed 207.49 grains, the twenty cent piece 82.57, and the ten cent piece 41.09. The half dollar was .800 fine, while the others were .700 fine.
It is said that the thousands of money changers by their agitation actually defeated the purpose of these coins. A stabilized rate for small money would eliminate a large portion of their profit. The new coins, therefore, fell after a while to the level of the other subsidiary currency. By debasement at the mints they have now fallen below the regular small money in value. In August, 1926, at Chefoo a Yuan dollar could be purchased for five 20 cent pieces, one 10 cent piece, and eight coppers of Manchurian Provinces coinage, which is the old “small money,” while six 20 cent pieces of the subsidiary Yuan coinage—the new small money —were required. The new small money carries on the obverse the portrait of Yuan Shih Kai.
The copper cents, at one time exchanging at the rate of 88 to the dollar, were 112 in 1906, 125 in 1908, 150 in 1920, and 285 in 1926, with a rapidly fluctuating rate. Since then, the Shanghai Tramways Company, which operates in the foreign settlement of Shanghai, sustained in 1925 a loss of over $2,500,000.00 Mex in converting depreciated coins into dollars. This was a ratio of nearly 57% to the gross receipts collected on the cars.
But many other kinds of money will be met with, such as the fractional paper notes usually in denominations of ten and twenty cents. They widely circulate at Tientsin, and fractional paper has about driven out the subsidiary silver at Tsingtao. A great variety of money will be found in some of the coast provinces; for example, in 1921 the American consul at Foochow reported that in Fukien there were in circulation Mexican, Hong Kong, Spanish Pillar, Dragon, United States Trade, French Indo-China, Straits Settlements, and Yuan dollars, besides the Japanese silver yen and the Philippine peso.
The value of the Yuan dollar, in terms of the U. S. dollar, varies according to the price of bar silver in New York, London, and Bombay; and the quotation in Shanghai is based on the London rate, which is cabled to Shanghai each day and published the following morning at 10:30. It naturally varies also with the trade balance, and is affected by many local and continuously changing conditions.
One condition which has begun to show itself in the exchange rates is this—the Chinese merchant usually buys a large part of his stock from England or America. England still controls a large share; but since a fast freight service was established between San Francisco and Seattle and the Chinese ports, the American trade with China has greatly increased. The Chinese merchant is enabled to effect a material reduction in the amount of stock carried due to this quicker delivery. During times of peace he buys freely from the United States, and the rate on the gold dollar advances on account of the demand for it to pay for these purchases. On the other hand, in time of war or threatened war, the merchant is not at all sure that his stock will not be commandeered by military chiefs or plundered by bandits. He sits tight and buys nothing he can possibly do without. The demand for the gold dollar diminishes and the value consequently drops.
One of the first attempts by the Chinese authorities to put gold coins into circulation was defeated due to the large numbers of spurious coins turned out by the counterfeiters. This was about 120 years before Christ. The iron money issued in 527 A.D. was so widely counterfeited that after a period of twenty years it was worth only a third of its original value. The counterfeiting of “cash” has been continuous and universal, notwithstanding the fact that one dollar is equal to about 2,400 cash.
A distinction should be made between “counterfeit” coins and coins which have been debased by a reduction in the weight and fineness of silver in them. The “thin dime” of the river provinces is about the size of a 20 cent piece, but little more than half as thick, and it passes approximately as a ten cent piece.
The counterfeit coins are usually made of brass, copper, or lead with a thin plating of silver. There is the “two piecee” dollar which is sliced in half and the halves put together after the cavity made by the removal of the silver from the middle has been filled with lead. Then there is the “three piecee” dollar which consists of a copper disc with a thin sheet of silver on each side, one of the side sheets carrying the milled edge of the coin. One sometimes meets with a dollar the edge of which has been pierced with a small drill, the silver laboriously scraped out from the middle, and lead poured into the hollow.
Frequently the bad coins can be discovered by the quality of sound they give out when dropped on a hard surface or struck with another coin. This, however, requires a good deal of practice. The Chinese in the exchange shops are experts at testing money in this fashion. They can run through a hundred silver dollars, ringing each one, in about the same time one can count to a hundred.
At Shanghai good coins are nearly always “chopped” (stamped) with ink, the chop being the initials or other identifying symbol of the exchange shop. This practice is so general that an unchopped coin should be viewed with distrust. In some places the coins are chopped with a metal die and, after being stamped many times, become slightly concave in shape. These coins are exchanged by weight.
Among the small coins the 20 cent piece is the one usually counterfeited. The counterfeiting of the 10 cent piece is much less common. The latter is going out of circulation due to its higher silver content, and it will soon disappear altogether unless the supply is replenished by new mintings.
China has neither the gold nor the silver standard as the basis for a currency system; there is, in fact, no recognized standard, although the business of the country is carried on in silver. There have been attempts to adopt the gold standard but success has not attended them due to the inability of the country to accumulate the necessary gold reserve. That the attempts should fail is not surprising when one considers the means by which it was expected to raise the gold reserve. One method approved during the Empire required that successful applicants for public office should pay into the treasury sums of money according to the importance of the office, and that half of the amount paid should be in gold. Officials who had been removed from office for cause might be reinstated upon the payment of a stipulated sum in each case, the entire payment to be in gold.
For many years to come the traveler may expect to have difficulty tn China due to the chaotic condition of the currency, and it is improbable that any satisfactory system will be evolved or put into use until the Chinese people generally demand it. Also, no system will be workable unless it is generally supported by the people, including the money changers. This latter group makes its living, and a good one too, from the peculiar and involved conditions of the currency, and the money changers have been largely contributory to the failure of every improvement in the field of currency in China.
A conference seeking “General rehabilitation of China’s finances and economics” met in Shanghai in June two years ago. Of the five major problems considered, the first was a “nation-wide uniform currency and the establishment of a sound banking system.” Mr. T. V. Soong, the Nationalist Finance Minister, presided.
It would be difficult to say how many times the matter of a uniform currency has been considered in China in the past, but it can be definitely stated that just that many times have the conferences resulted in little if any improvements in the situation. The Nationalists, however, have pursued their course from the beginning with an admirable steadfastness of purpose, and it is to be hoped that the present administration in China will prove to be an exception to the general rule.