Currency Issues and Financial Crises: The Excessive Issuance of Banknotes and Price Fluctuations during the “New Policies” Period in the Late Qing

Abstract

In the New Policies period of the late Qing, the central government’s power had declined due to an expansion of power at the local-government level. After gaining the right to independently fundraise during the Self-Strengthening Movement, local governments also obtained the privilege of issuing currency. Following a downward trend in China’s fiscal power, the issuance of banknotes by local government had become a noticeable problem. The influence of foreign banks in China, meanwhile, was continuing to expand, the increasing number of countries involved as well as the growing number of banks being just two examples. Because the central government lacked strong supervision, the rate of issuance of banknotes by foreign banks thus gradually increased, leading to growing prices. In addition, this dispersion of financial power further boosted inflation. Since the Qing government focused on reforming its approaches to finance and strengthening its central role during the New Policies, reorganizing its banknote policy was its primary agenda. However, to a large extent, the policy was guided by the idea that monetary policy should be subordinate to financial needs. Thus, the very limited effect of the Qing government’s banknote-reorganization policy also marked the regime’s failure to bring about the modernization of China.

Keywords

financial crises / banknotes / New Policies / late Qing

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2019 Higher Education Press and Brill