History of Money and Financial Crises in China-4





Mexican eagal coin

Spain coin

Since 15^th century, foreign traders started to use silver coins from their own countries to purchase silk, tea and china from China. Several kinds of them were introduced to China. At one time, silver coins from Spain and Mexican were even the main currencies in circulation. But it was until the 1850s that China started to forge their own silver coins.

After signing the Treaty of Nanking, Qing government was obliged to pay war reparations to Britain in a total sum of 21 million silver dollars. The Qing government didn’t have enough silver dollars in stock, and was forced to start forging coins on their own. The first machine-made silver coin in China was the “dragon coin” in 1889.




A bank run in 1940s

In 1853, suffering from severe financial constraints, Qing government deliberately created inflation, hoping this would ease their problems. They started by issuing debased coins that were one third of its standard weight. At the same time, they issued paper notes without proper reserves. Apart from the notes issued by government, other banks and financial institutes were also authorized to issue their own bank notes. With no restrictions what so ever, people had no faith in the credibility of those notes. A rumour started on February 1853, said that the notes would become invalid soon. This started a series of bank runs. Nearly 200 banks collapsed on 15^th February alone. The whole financial market was in chaos and created an even bigger problem for Qing government.