Thomas Tooke

The Chinese currency reform of 1935, details on the operations.

In Currency reforms on April 28, 2013 at 4:41 pm

Here what we learn from Frank Tamagna.

“The monetary reform of November 1935 provided for nationalization of silver and for a managed currency. At about the same time the United States Treasury gave indications that the price of silver was going to be decreased. Foreign banks found themselves with reserves of a highly problematic value. However, as they entertained serious doubts regarding the new currency, they were reluctant to give up their silver holdings. Local conferences followed between foreign banks and officials of the Currency Reserve Board (in Shanghai, Tientsin, Tsingtao, Tsinan, Hankow, and Canton), and by the middle of January 1936 the first agreement was reached in Shanghai. Although no official statement was issued, it was understood that the Central Bank of China had agreed to issue legal tender (national yuan) notes against delivery by the foreign banks of a sum consisting of 60% in silver an 40% in securities, including bonds, stocks and debentures;  to pay interest for two years on the silver delivered, and to make a deposit of equal amount at the banks turning over the silver, receiving a lower rate than the interest paid to the banks on the silver. Similar agreements were reached in other cities, and silver stocks were thus surrendered by all banks, with the exception of the Japanese, which adopted a position of watchful waiting until March 1937, when they decided to follow the common policy. The condition stipulated represented an actual premium on the silver delivered. ”

“A certain pressure on foreign banks was brought by the British Government. On November 4th, 1935 the British Ambassador in Nanking issued an Order-in-Council forbidding British subjects in China to make payments in Silver of any debt or other obligation. An embargo was placed on the white metal in Hongkong on December 5th, 1935 by a Currency Ordinance, which nationalized all the silver in circulation or in bank reserves, and set up an  Exchange Fund held by the colonial government. The specie reserve of the three banks of issue, the Hongkong and Shanghai Banking Corporation, the Chartered Bank of India, Australia and China the Mercantile Bank of India, amounting to HK$ 98.9 million (Hk$ 43 million less than at the end of 1934), was taken over by the colonial government against delivery of certificates of indebtedness for the same amount. The steps taken by the Hongkong Government were in harmony with the reports of the Commission on currency of 1931 and of the Commission on Trade of 1934-1935, which had come to the conclusion that “Hong-kong is economically a part of China, and must remain on a silver standard so long as China does.” But the presence in the Far East of Sir Frederick Leith-Ross, the official British adviser to the Chinese Government, gave rise to reports that British authorities had done more than simply back China´s currency reform of 1935.”


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