From Chaos To Rule

1927 was the year when Nanjing Government established; 1952 was year when the problem of inflation, which had puzzled China for 15 years since the Sino-Japanese War broke out, was solved thoroughly.The dissertation is expounded on by the time and takes the significant financial events from 1927 to 1952 as the scope. The dissertation analyzes and researches with wide vision and multiple perspectives on various issues in modern China's macro-financial sectors such as currency system, currency reform, the establishment of the state's monopoly financial system, international capital movement, fluctuations in exchange rate, inflation and the way to bring it under control and the running of financial industry under inflation. The dissertation also has an in-depth study on the structure of Nanjing Government's financial revenue and expenditure, its characteristics, the way to make up for deficit and the relationship among the finance in times of war, the post-war finance and inflation which are closely linked with finance, in order to grasp China's financial position and financial evolution of this time in its entirety and understand it in a wide scope.The dissertation firmly grasps the "chaos", "governance" in China's finance of 1927-1952, takes it as the main line and analyzes comprehensively the process between the two complementary points of "chaos" and "governance". The first "from chaos to governance" refers to modern China's disorganized monetary system and monetary setup of silver-based era. After the two monetary policy reforms, i.e."abolishing Liang and changing it into Yuan"and Standard Currency, modern China straightened out the disorder of the currency system, established a monetary standard and unified coinage and distribution rights. With the form of monetary being integrated with the world, it became a highly symbolized note and complied with the general trend of international financial system changing from valuable metal-based system to no-encashment note system. Standard Currency is the end-point of"from chaos to governance"of modern China's monetary system, and also the starting point of the second level of "chaos" as well.The second"from chaos to governance"refers to the process in which China's inflation occurred, developed, changed into classic hyperinflation and was successful treated by the People's Republic of China in the end. Just after the Liberation, the task of rebuilding China led to the two-way advancement of financial and productive issuance of RMB, serious inflation and tempestuously fluctuant prices. The government took the strategy of temporary treatment combined with long-term governance, economic and administrative intervention promoting simultaneously, financial policy followed up with fiscal policy, addressing both the symptoms and root causes, to stabilize prices with might and main. In 1952, the Government brought the stubborn inflation lasting for over 15 years under permanent control, thus creating a good social environment for people's lives and economic development. Since then, China maintained stable prices for more than 30 years, and she was one of the few "Oasis" maintaining stable prices and was prominent in the post-war era of inflation. Therefore, China's monetary and finance realized the second "from chaos to governance" in modern history.The dissertation consists of 14 chapters that are divided into five sections. Each section is a special subject, i.e. the fiscal and financial unification of Nanjing Government, currency reforms, international capital flows and exchange rate fluctuations, inflation and successfully bringing inflation under control just after the People's Republic of China was founded. Many of these subjects are not being researched or hardly being researched at present, such as international capital flows, exchange rate fluctuations, the characteristics of monetary disorder and the financial industry under the circumstances of China's economy, social relations, people's livelihood and inflation, the comparative study of China's and German classic hyperinflation, and successfully bringing inflation under control just after the People's Republic of China was founded. Although some scholars have discussed some of these subjects, I put forward new views by using new data and new methodology, such as anti-inflationary policy of Nanjing Government's Central Bank and the analysis of its performance. For the well-known issues, I try to create my own characteristics in terms of methods and structures. For example, in the first section, i.e. the fiscal and financial unification, traditional researches discuss the establishment of a national monopolistic financial system by Kuomintang Government. This dissertation names it "financial and monetary unity"; discusses the reasons and process of unification from fiscal and financial points; comments on the advantages and disadvantages of the fiscal and financial unification. As for"abolishing Liang and changing it into Yuan", few people have always been concerned about it; most treatises do not elaborate on its preparation and implementation, not to mention others like the reflections and attitudes of unincorporated banks, banking, business and other communities to"abolishing Liang and changing it into Yuan"and the options put forward by the specialists at that time.Through carefully reading and straightening out dossiers, comprehensive reports on"abolishing Liang and changing it into Yuan"in Bank Weekly and the comments at that time,the dissertation outlines the complete implementation of"abolishing Liang and changing it into Yuan", and accordingly makes objective and fair assessment on the causes for its success and its impact in history. Currency Reform has always been the hot spot in the research of modern economy history and finance history, with divergent views. In this regard, on the basis of laying stress on others'research results, the dissertation starts with first-hand information, expands horizon, places the Currency Reform in the background of home and abroad to study and analyze, and evaluates its historical role from the point of international monetary system and the trend of evolution. As for the relationship between Currency Reform and inflation and the impact on economy by Currency Reform, the dissertation uses data to draw new conclusions. The dissertation emphasizes that monetary reform is a systematic project; it should be carried out under the prerequisite of social stability, on the basis of corresponding conditions and constraint mechanism in order to avoid deviating from the purpose of reform.The dissertation also forms a number of new conclusions or new views:1. It summarizes five characteristics of China's disordered currency system before "abolishing Liang and changing it into Yuan", i.e. the standard currency is unclear, and the standard currency and accessorial currency are unclear; traditional currency co-exists with modern currency in modern times; the central and local government-issued currencies co-exist with currencies issued by non-government; national currency co-exists with foreign currencies; the regionalization in currency circulation co-exists with diversity of regional currency in circulation. It applies "entropy" theory to analyze the impediment to China's economy caused by currency chaos and by studying the long-term trend of silver-copper rate change in nearly 100 years of 1840-1935, it comes to the conclusion that significant change of silver, copper and commodity prices made people suffer from dual-inflation.2. As for the research of exchange, the dissertation advances for the first time that silver-based system was the earliest and the most absolute floating exchange rate system in the history of international finance; China's exchange rate behaved as the change of the ratio between gold and silver before 1931, but after 1931, it changed into a dual exchange rate of the ratio between gold and silver and the ratio between silver and foreign notes which had not fully convergent movements; it extracts the two valuable silvers during the First World War and 1930s, makes comprehensive comparisons from the aspects of silver price, prices of foreign commodities, the international purchasing power of silver and the impact on China's economy made the valuable silvers, and finds that the so-called valuable silver during the First World War is"valuable"on the surface, in fact it's"cheap", it ushers the first peak in the development of China's economy, and the so-called valuable silver is in fact valuable gold, valuable silver and valuable notes, its impact on China's economy is disastrous.3. The dissertation uses a variety of analytical methods to study in-depth the international capital flows, the impact on China's finance, economy, and import and export trade made by exchange rate movements; comes to a conclusion that the depreciation of exchange rate, silver influx, a moderate inflation in domestic finance, prosperity of industry and commerce, the development of economy are propitious to exports, but not propitious to import equipments, and also increase the cost of repaying foreign debts for China; the appreciation of exchange rate, the outflow of silver, the drop in prices, deflation, recession, the advance of silver's international purchasing power, help to reduce the cost of imported equipments and repay foreign debts, but they stimulate imports, curb exports and decrease the tariff revenue.4. The dissertation compares and analyzes comprehensively the characteristics and reasons of China's and German hyperinflation, as well as the successful experience and lessons of failure of anti-inflationary policies of the two countries, then concludes that in order to overcome hyper-inflation, it's important, firstly, to maintain stability in politics; secondly, to achieve a balanced budget; thirdly, to set up an independent central bank, implement tight monetary policy with a firm hand and stop issuing; Fourthly, not to ignore the role of "external anchor", which can be gold or a strong international currency; Fifthly, to carefully change the name of currency.5. By reading a large number of archival materials and various documents written by those who presided over financial work at that time, the dissertation outlines the inflation just after the Liberation; it analyzes comprehensively different stages of inflation, the causes of it and major measures; it deems that New China brought the chronic problem of inflation under permanent control in a very short time of 15 years, creating an economic miracle. The dissertation sums up that political stability is an important prerequisite for bringing inflation under control; the fundamental solution to bringing inflation under control is trying to balance revenue and expenditure and restricting the banknote issuance; in order to bring inflation under control, we should use financial policies together with economic and monetary policies, and then combined with proper market control and administrative intervention, thus forming a resultant force and receiving the effect of comprehensive management.