I do not have profound knowledge of the Chinese banking sector in the 1930s, but, for instance,

Tamagna, Frank M. Banking and finance in China. International Secretariat, Institute of Pacific Relations, 1942.

mentions that at this time Chinese banks were divided into modern and native banks, all issuing their own money, partly covered by silver reserves. In my understanding this means that there was no way for any governmental organization to control, for instance, inflation, which probably had an effect also on the ability to control any trading interaction with other nations.

I presume this view is rather naive and instead some implicit control mechanisms were in line - any explanation or comment to shed light on this issue would be highly appreciated.


The short answer is that there was little in the way of pre-defined tools, but the government could rely on its governing and legislative powers to intervene on an ad-hoc basis.

There was no coherent banking system in 1933 China. The concept of "reserve requirements" as we know it today did not exist - banks maintained a specie reserve to back their private banknotes, but there was no mechanism for enforcing a minimum. A Central Bank had been founded in 1928 to manage the treasury, but bears little resemblance to the modern reserve banks - it had neither a monopoly on currency issues nor the ability to control interest rates. In fact, creating a modern banking system was one of the first missions of the Nanking National Government.

The nominal government of 1930s China was not quite a dictatorship nor technically an one-party state, but it was nonetheless relatively able to impose its will within the areas its military controlled. This afforded it the ability to intervene directly. This it did through regulating the exchange market, imposing rules upon the banks, and controlling or even replacing the legal tender currency outright.

The latter was demonstrated in 1933, which actually happens to be the same year that the Nanking Government abolished the traditional silver taels and mandated the use of silver dollars. At the end of the imperial period, nearly 200 forms of silver taels were in circulation; for example, the kuping, which were official imperial treasury taels used for general taxation. Simultaneously however, the caoping taels were used in levying grain taxes traditionally delivered in the form of grain shipments, while the tariffs and duties were exacted in guanping taels. All of these weighed differently and had different finesse.

After the 1911 revolution, the Republic established silver dollars as its official currency, but did not outlaw the taels. The first silver coinage were struck in 1914, when a design featuring Yuan Shikai was adopted by the Beiyang Government as the official currency of China. These coexisted with numerous forms of foreign currencies and the aforementioned native silver taels, with all major transactions reckoned in the latter, until the financial reforms of 1933. At this point the taels were abolished, and a second design featuring Dr. Sun Yat-sen were issued.

Thus, while the patchwork situation may seem impossible to control, the ability of the Nanking Government to regulate the silver based currencies is a hint to the contrary. In fact, a mere two years later, the Nationalists carried out another round of financial reforms and established the fapi, a paper currency, as sole legal tender in China. The newly established Central Bank of the Republic, the old Manchurian reserve bank, and the Bank of Communications were authorised to issue the new currency on the government's behalf. The power to issue their own banknotes were gradually revoked from all other banks.

The issue confronting Chinese finances at the time was not inflation, but rather deflation. The price of silver was subject to great volatility during this period, which was further considerably exacerbated when the United States enacted the Silver Purchase Act of 1934. This led to a severe deflation, and in response the National Government abandoned the silver standard in 1935. Silver dollars were taken out of circulation, private bank notes were banned, and the government began issuing paper, fiat money. The new currency was pegged to the Pound Sterling initially, and later to the US Dollar.

In this way the government was able to rapidly, and decisively, intervene in the currency. They succeeded in moving the economy back into inflation, but not at a level that aroused concern. Everything changed in 1937, however, with the outbreak of the Sino-Japanese War. Revenue plummeted as the Japanese occupied wealthy coastal regions, while expenditures skyrocketed. The government - through the major banks - resorted to printing money to make up the deficit, causing inflation to jump to 49% in 1938, 83% in 1939, 124% in 1940, and reaching about ~250% per year from 1942 to the rest of the war.

A series of emergency measures were enacted in this time, mostly via regulating foreign exchanges and trade. They were by and large ineffectual. Prices reached 35 million times that of pre-war levels while the amount of fapi in circulation increased from 1.4 billion in 1936 to 500 billion by 1945.

The financial collapse after 1937 was slow and complete, but do keep in mind it coincided with a prolonged period of destructive and deadly conflicts, during which the National Government was rarely in control of China's productive, industrialised heartlands. Starved for resources of all kinds and fighting a bloody war of survival against enemies within and without, long term financial stability were a distant afterthought.

Had the peace of the Nanking Decade persisted, the Nationalists could well have responded appropriately to potential inflation levels, in the same way that it reacted to the deflation of 1934. In fact, the National Government did eventually try to combat the hyperinflation by moving back onto the gold standard in 1948, followed months later by a return to the silver standard, but by this point the communist revolt had overran most of China.


  1. Horesh, Niv. Chinese Money in Global Context: Historic Junctures Between 600 BCE and 2012. Stanford University Press, 2013.
  2. Bonin, Hubert. Asian Imperial Banking History. Routledge, 2015.
  3. Wilkinson, Endymion Porter. Chinese History: a Manual. Harvard University Asia Center, 2000.
  4. 楊格《中國的戰時財政與通貨膨脹,1937年-1945年》
  • 2
    Excellent answer, superb summary of events with strong citations, but I wonder if it provides enough information about currency manipulation options to answer OP's question. I may write more tonight. – Mark C. Wallace Nov 28 '17 at 15:42
  • 1
    @MarkC.Wallace You're right, I wanted to provide the context for understanding the options Nanking had at the time, and ended up rambling. My central thesis is that the Nanking government intervene directly with the currency on an ad hoc basis rather than through any pre-defined mechanisms, because there wasn't any. – Semaphore Nov 28 '17 at 17:46

The same ones that the U.S. Fed had. But with far less effect, because the Chinese economy was far less integrated.

  1. Changing reserve requirements. This was more honored in the breach than the observance.

  2. Raising interest rates. Not particularly effective because there wasn't much interbank lending.

  3. Open market operations. Again not really effective because there were few counterparties.

  4. Finally, "moral suasion;" that is "jawboning" people to do the right thing. Had mild impact, but less so among the people that really counted.

  • 1
    Difficult to argue that a species backed currency has the same option as a fiat based currency, or that a central bank has the same options as a specie currency. – Mark C. Wallace Nov 28 '17 at 17:48
  • @MarkC.Wallace: When I said that China had the "same" tools available as America, I was pulling them out of a textbook. I qualified that by saying "with far less effect because the Chinese economy was far less integrated." Each point was in the format xoxo with x being the tools, and o being the contradictions. – Tom Au Nov 29 '17 at 1:54
  • I can see that. I think that it is time for me to provide my own answer rather than pick nits about other answers. – Mark C. Wallace Nov 29 '17 at 9:17

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