Briefly the Government's decree of November 3, provided regulations for making the notes of the Central Bank of China, the Bank of China and the Bank' of Communications sole legal tender, against which hold-Ings of silver in the hands of the public were to be exchanged within period of three months, since ex-{ended to six months, and in which all taxes, debts and other obligations could be validly discharged; the centralization and central of note-issues and their reserves in the hands of a Currency Reserve Board to consist of representatives of the Ministry of Finance and of financial and commercial interests; and the Stabilization of exchange at the then existing level by instructions to the three Government banks to buy and sell foreign exchange In unlimited amounts.
Tt was further announced that, in' order to make these measures effeetive, the Central Bank of China would be reorganized to function a3 fan independent central reserve bank, and that plans of financial adjust ment had been made whereby the national budget would be balanced eighteen months. In addition, a special institution was to be created to handle mortgage business. and slops taken to amend the legal code 0.8 to make real estate more deceptable as security for loans, thereby Increasing the liquidity ' of the commercial banks.
The new monetary system met: with a reception that was surprising to many students of monetary history, who had been unduly influenced by exaggerated reports of the conser vatism of the Chinese people and statements regarding their monetary mentality. 'The country woke up (0 new currency system on November 4, and within three days' the Success of the measure was assured, except that in the North the silver reserves were held by a separate Currency Reserve Board, and in the provinces of Kuanglung and Kwangsi, not only was there a separate Currency Reserve Board, but, con trary to the practice in the rest of China, the currency continued to be based on local notes. Except for the provinces of Kuangtung and Kwang-the legal tender currency has been lreulating freely everywhere, and the Initial spectiative rise in basic commodity prices has been rapidly
The Scheme's Success There were many influences that under control, contributed to the success of the change, In the frst place, monetary and Ananclal conditions before the change were 20 chaotic that anything, possibly even outright devalua~ ton, would have been preferred (0 continuance of the prevailing un-Certaintles. Secondly, successful currency. changes in' many foreign countries made bankers in China realize that the new system was, after all, not without a precedent. 'Then, too, the virtual prohibition, by. the decree of October 15, 1994, of the free trapster of silver abroad, and five months' experience of irre: deemable paper currency in North China, hod "gradually "accustomed the people to accept an inconvertible Moreover, the ready ce-operation of the foreign banks, and in particu-Jar the "King's Regulation" promptly issued by the British Ambassador, prohibiting British nationals from making payments in silver, did much help a situation that might have been greatly complicated by the extraterritorial rights enjoyed by many foreign residents and institations. Finally, the purchase, of 00,000 ounces of silver by the US. Government at the price of 68 cents per ounce provided the Government Banks with additional holdings of foreign currency with which to main fain exchange at the level prevailing, when the new system came into operation.
Five months have now elapsed since the introduction of the new monetary policy. Not only _have rales of exchange been held remarkably stable, in spite of misconceived apprehensions based on the decline in' the price of silver from 204d the neighbourhood of 20d. per ounce, but, with the exception of Kuangtung, Kwangsi and Yunnan, domestic exchange business has been handled at par for a nominal charge of one anda half per mille for retmittances between different provinces and one per mille for those "ithin each province.
Stimulant to Trade Recovery It may be pointed out that the Government did not at the outset fix the exchange value of the Chinese dollar in terms of any one particular foreign currency, though it was realized that such a choice might in the long run prove unavoidable, The relative stability of the _prineipal foreign currencies has, however, 's0 far made this largely 'a question of theoretical importance. The remarkable steadiness of exchange, at a more normal level, has stimulated China's exports and discouraged imports, with the result that since De-ember, for the frst time in sixty yenrs, the trade balance as shown by the Customs figures, has been favourable. There have been a gradual recovery of confidence, easier money conditions and a perceptible revival of business activity.
It stability of exchange could be safely maintained for a reasonably Jong period of time, and political apprehensions could be relieved, the flight of capital that has taken place the past two years should be reversed, and, as economic conditions throughout the world improve, China might once again become an attractive field for the Investment of foreign capital.
There is, not unnaturally, still a body of opinion that reserves judgment as to the final outcome of the feurreney change. Potential weaknesses exist in the possibility of a further precipitate fall In. the price of silver, in threats of foreign pol: tical complications and in the existence of heavily unbalanced budget, If Wor should for any length of time fall much below the theoretical dollar parity of 174d, and it should become profitable to import silver Into China, the present. exchange level might perhaps be threatened, if the Government had not by then succeeded in disposing of an appreciable part of silver holdings. However, with the price of silver approaching its lowest level in terms of gold, fears of this kind have to a large extent been removed,
Text read from the printed page and cleaned; old type leaves the occasional error.