1948 Gold Yuan
By Jean-François Ostermann | Monday, December 7, 1998
Who still remembers the Chinese monetary reform of August 19, 1948? Its failure and the collapse of the regime which threw it into the oblivion of history. There are hardly any more than paper money lovers who, from time to time, talks about it randomly. And yet they often neglect them, due to lack of knowing how to interpret them. Let's try to put them in context, both for beginners and for the curious.
A context of civil war
You don't have to go back far to get the context. In 1945, the Republic of China emerged from the Second World War on the winning side. It is even among the big four, with the United States, the Soviet Union and the United Kingdom, which recognized it a permanent seat with veto power on the Security Council of the United Nations long before to grant it to France. But China is also the weakest of these big ones. At war with Japan since 1937, a good part of its territory was devastated, its human and economic losses were enormous, its finances were burdened. Worse still, the unity and reconstruction of the country proved to be compromised: when the nationalist government of Chiang Kai-Shek wanted to regain control of the territories previously occupied by the Japanese, it came up against the Chinese Communist Party of Mao Zedong, which had of its own army, controls and administers all or part of several provinces. Until the beginning of 1947, while the mediation of the United States was still trying to avoid civil war, the nationalist government seemed to regain the upper hand. Then, despite American material aid in a now open conflict, he definitively lost control of northern China in the spring of 1948 while his counter-offensives stalled.
A dilapidated currency
The uncertainty of the political and military situation does not fail to have repercussions on the national currency, the yuan or Chinese dollar, it being understood that we are only talking here of the general emissions of the Central Bank of China, and not of its special issues or those of the various banks created in regions under communist control. Inflation has gone from being vigorous to galloping. The evolution of the rate of the US dollar constitutes the most convenient indicator.
From March 1946 to February 1947, the official rate of the US dollar rose from 2,020 to 12,000 yuan. From August 17, 1947, this official rate was only used for a few imports, while an open market was created, the rate of which was valid for most transactions. The US dollar climbed to 90,000 yuan while the free market price reached 145,000 yuan per US dollar on the same date. Finally, the prices on August 18, 1948 give the full extent of the disrepair of the Chinese currency on the eve of its reform: 8,287,000 yuan for one US dollar on the open market, 12,000,000 yuan on the free market, but “only” 20,000 yuan at the official rate.
The latter undoubtedly explains why, despite the increasing depreciation of its currency abroad, the nationalist government has not issued denominations with a face value greater than 10,000 yuan. These issues are still massive, since at least three Chinese and two foreign printing companies (the American Security Banknote Company and the English Thomas De La Rue) produce this nominal in at least eight different types, even in their formats. It is not possible to put forward a chronology or geography of their emission here, but it is reasonable to assume that they did not all circulate simultaneously and over the entire extent of the territory under nationalist control.
Making something new out of something old
Two clues allow us to suppose that the principle of monetary reform must have been retained quite in advance by the nationalist government. A 50,000 yuan note still dated 1947 and printed in the United States was not put into circulation, and although the reform did not take place until the summer of 1948, only a yuan issue for regional use still carries this date.
The reform took place on August 19, 1948, with the creation of a new monetary unit, the gold yuan or gold dollar, divided into 100 cents and worth 3 million old yuan, the exchange rate being set at 4.05 gold yuan for one US dollar, which is equivalent to formalizing the price of the old yuan on the open market.
Despite this significant increase in Chinese currency, the cash put into circulation during the reform does not include any metallic currency, only banknotes. Another particularity, which certainly facilitated its execution, the renewal of the money supply is essentially done thanks to old stocks of notes.
The Nationalist government put into circulation denominations of 10 and 20 cents dated 1946, as well as 1, 5, 10, 20, 50 and 100 yuan dated 1945. Kept in reserve because the depreciation of the old yuan rendered their futile issue, these denominations with low face values can be used as is without much risk of confusion, since inflation has already removed all market value and caused the old notes of 100 yuan and less to disappear.
All these banknotes are notable for their foreign printing and for an innovation in their illustration. Those from 1945 were produced by the American Banknote Company and decorated with portraits of Chiang Kai-shek or Lin Sun, the two being united on the 100 yuan note; The portrait of the founder of the Republic of China, Sun Yat-Sen, until now omnipresent on Chinese banknotes, now only appears on a 50 yuan note, of which there is also a doublet with the effigy of Chiang. Those from 1946 were produced by Thomas De La Rue and only with the image of Chiang. Currency testifies to the personalization of power in a threatened regime.
To this first group of banknotes is added that of denominations dated 1948, produced this time by four different printers: the Chinese Central Printing Factory (50 cents, 10, 20, 50 and 100 yuan) and Chung Hua Book Company (20 , 50 and 100 yuan), the American Security Banknote Company (50 cents and 50 yuan) and the English Thomas De La Rue (50 yuan). All these banknotes feature the portrait of Chiang Kai-shek.
With the cohabitation of several different banknotes for almost all denominations (up to six for that of 50 yuan), this reform leaves an impression of confusion, although we can assume that certain banknotes were quickly withdrawn.
The ephemeral illusion of a strong currency
But the nationalist monetary recovery was short-lived. The new gold yuan must be devalued on November 11, 1948, the rate of the US dollar dropping from 4.05 to 20 gold yuan while a system of exchange clearance certificates was established: all exchange receipts were to be delivered to the Central Bank of China against delivery of certificates negotiable in US dollars. What follows is nothing more than a brief but dizzying descent into hell. In ten months, while the communists entered Beijing, crossed the Yangtze and took Nanking then Shanghai, the face value of the largest note in circulation rose from 100 to 5,000,000 and the gold yuan collapsed to thirty -fifth of the value of its predecessor! In September 1949, 425 million gold yuan was required for one US dollar on the free market when the Nationalist government evacuated mainland China to retreat to Formosa. The way is clear for the jen min piao, or People's Bank dollar.
