Monetization Of Financial Deficit In Late Qing Dynasty (From 1840 To 1861)

In order to alleviate the impact of the COIVD-19,some countries have adopted expansionary fiscal policies to rescue real economy,such as the direct purchase of government bonds by the central bank,some scholars believe that this means the normalization of the monetization of financial deficit,which has been discussed a lot in academic and political circles.Looking back at history,fiscal deficit monetization measures have been adopted for a long time,and in the face of fiscal crisis,there are many governments that choose to issue money to make up for the fiscal deficit,such as Wang Mang’s "Jincuodao",the Ming Dynasty’s "Daming Baochao",the German "paper mark",etc.In the era of the absence of the central bank,it is not uncommon to transfer the pressure of the fiscal deficit to the currency,but most of this measure has not lasted long,and most of them have failed.The issuing of Daqian and Guanpiao,Baochao in the Xianfeng period are one of the classic cases of fiscal deficit monetization.In order to explore the impact and economic essence of the monetization of financial deficit,this paper will research the deficit monetization policy of the late Qing Dynasty,clarify its background,formulation and implementation under specific historical conditions,objectively analyze the impact of this measure on the economy and society,and try to explain its necessity and limitations under specific conditions,try to make contribution to enrich and improve the relevant achievements and conclusions,and provide a certain historical mirror for the theory and practice of new Modern Monetary Theory(MMT).This paper is divided into seven chapters,focusing on the three core issues of the background,implementation process and policy effect of the monetization of financial deficit in the late Qing Dynasty: chapter 1 to 2 explain the background and research significance of the topic,including the relevant academic achievements and historical materials,so as to provide economic theory and historical data support for follow-up research.Chapter 3 analyzes the formation of the huge fiscal deficit in the Xianfeng period from the perspective of fiscal revenue and expenditure,and discusses the accelerating effect of monetary policy and money and money on the formation of the deficit at that time,pointing out that the policy of monetizing the fiscal deficit is an important manifestation of the transformation of the Qing government’s finance from "keep expenditures within limits of income" to "adjust income according to expenditures".Chapters 4 to 5 discuss the issuance and circulation of two specific policies for the monetization of fiscal deficits,Daqian and Guanpiao,Baochao analyze the rapid depreciation of them in circulation,and further explore the direct causes of the failure of the monetization of fiscal deficits.Chapter 6 is about policy effects,which discusses the short-term and long-term policy effects from the perspectives of deficit size and food price changes,combined with literature and data.Chapter 7 analyzes the root causes of policy failure and rethinks the policy of monetizing fiscal deficits within a modern economic framework.On the basis of comprehensively collecting relevant archives,historical materials,historical documents and drawing on the research results of predecessors,this paper uses fiscal and monetary theory to draw the main views and conclusions through analysis and research as follows:First,the purpose of the Qing government’s monetization of financial deficit is mainly to solve the fiscal deficit,followed by the purpose to alleviate money shortage,which is an important manifestation of the fiscal transformation into " adjust income according to expenditures",the policy was introduced when the idea was more comprehensive,in the two or three years after the issuance of Daqian and Guanpiao,Baochao,it played a role in making up for military expenditure,avoiding the expansion of the deficit scale,and also playing a certain role in decreasing grain prices,and played a first aid role in short run,when the Qing government formed the fastest and largest fiscal deficit.Second,the direct cause of the failure of the Qing government’s monetization of financial deficit is the lack of constraint mechanism in the implementation of the policy,so that some of the original more ideal policy proposals have not been realized,which is due to the high seigniorage tax(low cost)and irreversibility led to the unconstrained issuance of Daqian and Guanpiao,Baochao,also due to the lack of constraint institutions,the Qing government exploited the wealth of residents driven by the interests of high seigniorage tax,in the long run,resulting in the proliferation of currency issuance,and the depreciation in circulation accelerated.The depreciation rate is more than 90%,resulting in severe inflation,the loss of credibility of the government,ultimately the policies failed.Third,the root reason for the failure of fiscal deficit monetization is that the Qing government,which was in internal and external difficulties,failed to achieve the coordination of fiscal policy and monetary policy,and during the policy buffer period created by Daqian and Guanpiao,Baochao,the decline of the central government’s financial power,led to the emergence of measures to hinder economic recovery such as private increases in taxes and tax rates,and it was impossible to introduce fiscal policies to stimulate the economy.This failure of the policy reflected the difficulty of the transformation of state and social relations in the late Qing Dynasty.According to this,this paper believes that under the modern economic framework,the emergence of central banks has divided the government’s monopoly on money into two parts: the formulation of the monetary system(including the provisions on the legal repayment capacity of money,as well as the provisions on monetary units,materials,types,etc.)and the rights of currency issue,which is both a decentralization of the government and an endorsement for the government’s credit,allowing the central bank to play a bonding role in the form of an independent institution,making up for the natural defects of the lack of constraint mechanisms in the old era.Better demarcation of a reasonable line for government behavior constrains the credibility of the government’s laissez-faire issuance of currency issuance.At that time,if the monetization of financial deficit does have the necessity of its exercise,for example,under extreme circumstances such as extremely low interest rates,unlimited elasticity of monetary demand,lack of expansion space in fiscal policy,and high market failure,there is no need to be panic when talk about deficit monetization policy.The functions of fiscal policy and monetary policy should be coordinated,so this historical mistake would not be repeated,to realize the synergy of the two policies and to achieve Pareto improvement.Central bank is an essential part,the emergence of central banks means that the government’s monopoly on money is divided into two parts,that is,the right to formulate the monetary system and the right to implement monetary policy,which are borne by two institutions respectively.Discussing the monetization of fiscal deficits in this context requires rethinking the function of fiscal policy and monetary policy.Promoting economic growth is the common goal of fiscal and monetary policies,and the two policies should be coordinated with each other to maximize their effectiveness and promote economic development to achieve Pareto optimality.Therefore,if it is necessary to exercise the monetization of financial deficit in the event of an extreme shock,such as extreme situations such as extremely low interest rates,unlimited elasticity of monetary demand,lack of room for expansion of fiscal policy,and high market failure,under the condition that there are central banks,especially central banks with strong independence,there is no need to be panic when talk about deficit monetization policy,because the modern economic system already has a braking mechanism,and the central bank will set up internal procedures under certain policy objectives,and arrange the corresponding exit mechanism after triggering the corresponding conditions.The functions of fiscal policy and monetary policy should be coordinated by more detailed division,so this historical mistake would not be repeated,and then realize the synergy of the two policies,achieve Pareto improvement.