The Xianfeng currency depreciation: an essay on early modern
Chinese monetary policy
-Work in progressEH590 Thesis Workshop, LSE
Xun YAN
I. Introduction
The monetary history of early modern civilizations is more or less packed with events
of the bullion famine, counterfeit, and issues like bimetallism and debasement. The
Xianfeng (Hsien-feng) period (1851-1861) of the late Qing Dynasty had witnessed an
explosion of all these issues. The traditional currency system was already delicate
before the Emperor Xianfeng ascended his throne in 1851. When the Taiping
Rebellion occupied the most prosperous region of China and cut off the government
supply of copper from Yunnan, both the currency system and the fiscal taxation
system were on the verge of collapse.
It was under this situation that many drastic monetary policies took place, and most of
them were largely perceived as a failure: new types of currencies circulated at various
discounts and the end of the war in the 1860s, most of the monies disappeared from
the market.1 However, this case is of particularly interest as many hasty measures of
very different natures were adapted including the debasement as well as the
introduction of the official paper money. Moreover, these policies were introduced
under a traditional monetary system which was only partially controlled by the state.
This would raise many questions: from the government perspective, did the
debasement achieve its fiscal objective? And from the market perspective, did the
currency reform help increase liquidity? Finally, to what extent were people’s daily
life affected by the currency depreciation?
1
Kuroda, Akinobu, ‘The collapse of the Chinese Imperial Monetary System’, in Sugihara, Kaoru (ed.),
Japan, China, and the Growth of the Asian International Economy, 1850-1949, Oxford; New York:
Oxford University Press, 2005, p. 102.
1
This paper is a result of the early stages of a research agenda. It investigates the
historical documents and collects data series from various sources in order to show:
how was the original fiscal difficulty channelled to the market through inflationary
finance and to what extent did the currency reform influence the market behaviour.
The rest of the paper is organised into three sections: section II provides a brief
accounts of the pre-modern Chinese monetary and fiscal arrangements; section III
discusses the monetary measures and how it was perceived by the market especially
in the metropolitan area; section IV concludes.
II. Historical setting: the pre-modern Chinese monetary and fiscal arrangements
By the time of the Qing Dynasty (1644-1911), the pre-modern Chinese monetary
arrangements had evolved to a quasi-bimetallic system with copper and silver.2 The
state monopolized the minting of traditional copper cash, a full-bodied copper coin
bearing the face value of 1 wen (circulation by tale). In large transactions payments,
string of copper cash is used.3 The copper cash was minted at the Imperial mints,
Baoquan and Baoyuan, as well as some provincial mints with pre-determined quotas.
Silver, on the other hand, circulated in various forms of silver ingot without any face
value (circulation by weight). Various ‘ghost units’ were adopted in different places
for accounting purpose only. In the capital city Beijing (Peking) for example, the unit
of account for copper cash was jingqian (metropolitan cash) instead of wen. For silver,
there were also many different imaginary units like Kuping tael, Haikwan tael, etc.4
The state had frequently tried, and more than often failed, to fix the exchange rate
between silver and copper cash at the ratio of 1 silver tael to 1000 copper cash. Unlike
the copper cash, the supply and demand of silver was decided by the market. In this
regard, the Qing government exerted only a partial control on the monetary supply of
the state.
2
King, Frank, H. H., Money and monetary policy in China, 1845-1895, Cambridge: Harvard
University Press, 1965, p. 27.
3
A string was valued at a premium. For example, a string of copper cash was worth 1000 cash but
normally it contained only around 980 copper cash. Kuroda, Akinobu, ‘The collapse of the Chinese
Imperial Monetary System’, in Sugihara, Kaoru (ed.), Japan, China, and the Growth of the Asian
International Economy, 1850-1949, Oxford; New York: Oxford University Press, 2005, p. 103.
4
Tael, or liang in Chinese, was used both for the unit of weight (31.25 grams) and for the unit of
account. The concept seems similar to that of a ‘pound’ and a ‘pound sterling’.
2
In terms of fiscal revenue, there were three main sources of taxation: the land and
population taxes (land and pool tax, and grain tributes), the salt gabelle and the
merchandise taxes (maritime and inland tariff). The salt gabelle was insecure with
increasing activities in salt smuggling. The maritime and inland tariff was also
difficult to collect with numerous local unrests and the ever weakening central power.
The land tax and grain tribute was the most important source of income (around 80%
of the total government income). The amount of this land tax was fixed as early as in
1712, which rendered the fiscal income extremely rigid. In terms of the government
expenditure, around 50% of the expenditure was on defence, and the rest on the
salaries of the central government personnel and on the Imperial household expenses.5
The collection and management of the tax revenues were the responsibilities of the
Board of Revenues (hubu). All the central government revenues (in monetary forms)
were deposited in the Imperial Treasury, a department under the Board of Revenue.
Each year, the Treasury compiled a book (the Treasury Records, or hubu yinku
huangce) to submit to the Emperor about the information of monetary transaction and
the-end-of year money stock. The Board also exerted direct control over the Imperial
mints.6 A point worth mentioning is that the copper cash coinage (monopolised by the
government) was deposited monthly in the Treasury and was regarded as a source of
revenue.
Since the early 19th Century, significant economic changes as well as a series of
political events took place. The deterioration of the terms of trade resulted in a large
outflow of silver and thus a plausible contraction of China’s monetary base. After its
defeat in the first Opium War (1840-42), the Qing government paid an indemnity of
21,000,000 Spanish dollars (around 14,700,000 silver tael, while the total central
government income in 1842 was 12,508,544 tael). 7 In 1850, the Taiping rebellion
broke out and quickly cut off the supply of copper from Yunnan. 1853 the Taipings
5
Chen, Jerome, ‘The Hsien-Feng Inflation’, Bulletin of the School of Oriental and African Studies
(1958), 21: pp 578-79.
6
The Baoquan mint was a department under the Board of Revenue, while the Baoyuan mint was a
department under the Board of Works (gongbu). However, the provision of copper and the monthly
minting quota of both mints were decided by the Board of Revenue.
7
Shi, Zhihong, Statitstics on the income, expenditure and stocks of the Board of Revenue Treasury of
the Qing Dynasty (Qingdai hubu yinku shouzhi he kucun tongji), Fuzhou: Fujian People’s Press, 2009,
p. 208.
3
occupied Nanjing (Nanking) and the area of Yangtze-delta, and thus deprived the
Qing government of its most important area of land tax and grain supply. On the other
hand, up to 1853, the expenses for military operations against the Taiping had already
amounted to a total of 29,630,000 silver tael,8
III. The Xianfeng currency reform
Suggestions on the debasement of coinage and the issuance of the paper notes had
been raised frequently during the reign of Daoguang (1821-1850) and were always
rejected because of the potential disruption these measures might impose on the
traditional system. Eventually during the third year of the reign of Xianfeng (18511861), the monetary reform was introduced under the combined crisis of bullion
famine and financial distress. A series of measures of distinct natures were
implemented including debasement, the coinage of iron cash, and the issuance of
various paper notes.
In August 1853, the Imperial mints started the coinage of the ‘big-cash’ (daqian) copper cash coins with face values varying from 5 wen to 1000 wen. As their real
intrinsic values (copper content) were not increased at the same proportion, the ‘bigcash’ coinage was a de facto debasement.9 Within less than one year, only the bigcash with 10 wen (dangshi daqian) denomination remained in circulation.10 The iron
cash was minted since February 1854. The metallic value of iron cash was even lower
and the circulation ceased in 1859.11 Two types of government notes were issued in
1853: the silver note (yinpiao) and the copper notes (baochao). The former was
denominated in tael and the latter in wen. The government believed that the notes
would circulate side by side with the commodity monies at par, and would therefore
ease the monetary stringency which was especially severe in the metropolitan area.
Both paper notes were an instant failure and were rarely seen in the market.
8
Peng, Zeyi, Public finance and the Chinese economy during the late 19th Century (Shijiu shiji
houbanqi de zhongguo caizheng yu jingji), Beijing: People’s Press, 1983, p. 127.
9
The standard copper cash (zhiqian) weighed 0.12 liang, and was composed of 70% of copper and
30% of lead. The big-cash however, presented a reduction in either relative weight of the coin or the
metal fineness, or both. The big-cash with 10-wen denomination also contained 70% of copper, but
weighed 0.44 liang only. The big-cash with 1000-wen denomination, weighed only 2 liang, and
contained more base metal than the standard cash.
10
Peng, Zeyi, p. 88.
11
King, p. 150.
4
As the capital was then cut off from the rest of the country, and as most of the bigcash and paper notes were used for the government payments in public works,
soldiers’ pay and official salaries,12 the new types of money mostly circulated in the
capital area. The big-cash and the official paper notes appeared to have the most
significant impact in the market. With the help of some data information from the
Treasury Records and other sources, this paper tries examine the total note issue of
the Xianfeng period, as well as these two inflationary measures through several angles.
3.1 The note issue and the money supply
The original records of the coinage at the Imperial mints might be lost forever.
Fortunately, as the newly minted coins were all deposited in the Treasury, the minting
volumes (monthly and annual) could be traced back in the Treasury Records. Since
1854, the Treasury Records also included the information on the volumes of Baochao
printed each month. The data in the Treasury Records is nevertheless troublesome and
frequently deceptive. For example, every month, the copper cash minted by the
Imperial mints were recorded by their total nominal values (in string). It is therefore
almost impossible to tell how many of them were standard copper cash, and how
many of them were debased big-cash with much higher denominations. To make
things worse, many volumes of the Treasury Records were lost. For the eleven years
of the reign of Xianfeng, only seven years of the income information and four years of
the expenditure information could be found in the archive.
The annual coinage and note issues from 1851 to 1861 (Fig. 1) shows that with the
coinage debasement in late 1853, the nominal value of copper cash minted climbed
upwards and exceeded the average casting volume of normal years (1851 and 1852)
for three years. The minting output seemed to decline afterwards, probably due to the
increasing difficulty of obtaining copper. The total value of the big-cash, however,
was minute compared to the note issue. Information from some official memorials
show that the nominal value of the total coinage is 11,090,500 string while the total
note issue of Baochao and Jingqianpiao reaches 76,560,948 string by the end of
1861.13
12
13
Ibid, p. 153.
Peng, Zeyi, pp. 81-83, 115.
5
Estimates suggest that during 1840-50 the nationwide total money in circulation is
around 187,130,879 strings of copper cash and 326,961,350 tael of silver. Given that
Beijing had around 1-3 % of the total population, the total money in circulation in
Beijing at the beginning of the 1850s would be around 1,871,309-5,613,926 strings of
copper cash and 3,269,614-9,808,841 tael of silver. In this case, the monetary increase
of the Xianfeng period would have a huge impact on the total money supply.
3.2 The big-cash
Debasement is the most frequently resorted method of increasing seigniorage
revenues in many pre-modern states. In China, the mechanism is slightly different. As
the state dominates the copper mines and thus the supply of copper, a reduction of the
metallic content of a coin would not induce an increase in minting volume. However,
since the Chinese state minted the coins and put them into circulation through
government payments and official salaries, the nominal value of the total coinage
(less the cost of brassage) would be the seigniorage revenue in the Chinese case.
The minting of debased coinage started in 1853. The copper cash was traditionally a
highly uniformed money bearing almost the same weight and same face-value (1 wen),
and now there were copper coins with different weight and various denominations
ranging from 5 to 1000 wen. The big-cash with 10-wen denomination is the most
widely circulated. Big cash with other denominations were stopped minting before the
end of 1854 and were rarely seen in the market. The annual coinage in Figure 1 is
indicative of the minting volume of the big cash: the minting volume reached its peak
probably in 1854 and 1855, and then declined.
With the weight of 0.44 liang, the intrinsic value of the 10-wen big-cash would worth
roughly 4 wen (4 standard cash). If both the big-cash and the standard cash were
forced to circulate at their face values, the standard cash would be driven out of the
market. However, if monies could circulate at their intrinsic values, then the
Gresham’s Law would not apply. Only very scattered information could be found on
the exchange rates between the big-cash and the 10-wen denomination big-cash (Fig.
3). Within one year of its introduction, the market price of the big-cash depreciated to
around 6 wen, which was still higher than its intrinsic metal price. The big-cash might
derive this high price from its value of exchange as coins with higher denomination
6
were more convenient to use. Some inexplicable phenomenon occurred in 1856 and
again in 1861: the market price of the big cash declined to merely 2 wen, which was
only half of its intrinsic value. There are several possible explanations: there might be
further debasements of the big-cash in terms of weight or fineness; or maybe because
the market was full of big-cash that coins with smaller denomination (i.e. the standard
cash) were valued more. Further evidences are needed in order to solve this puzzle.
3.3 The government paper notes: yinpiao, baochao and jingqianpiao
As shown in Figure 1, the most harmful type of money appeared during this period
were perhaps the government paper notes. The government issued two types of paper
notes: yinpiao and baochao. Yinpiao was denominated in tael and was seen by the
government as the substitute for silver, while baochao was denominated in string and
was regarded as the substitute for strings of copper cash. Both these notes were
printed under the direction of the Board of Revenues and used in all sorts of
government expenditure.
Issued openly without any backing or any promise of convertibility to real precious
metals. These two notes met instant rejection in the market. Yinpiao is rarely spotted
in the Treasury Records, and almost never appeared in any descriptive document of
the market. This might suggest that yinpiao was not at all recoganized in the market
and was therefore abandoned by the government at a very early stage. Baochao fared
no better. No evidence shows that these notes ever circulated in the market and some
contemporary diaries stated that baochao were not recognised by the shops and were
almost useless.
After several weeks of the note issue, the government recognised the circulation
difficulty and tried to fix this problem by establishing another financial institution, the
guanqianju. Inspired by the wide circulation of paper notes issued by private native
banks, the government established several official banks (to be more precise, the
official money exchange shops) or guanqianju. These banks operated in a semiofficial way. They issued paper notes either without any backing or backed with
insufficient reserves. These notes were called jingqianpiao (metropolitan cash notes)
as they were denominated in jingqian, the most popular accounting unit in Beijing
area, in order to appeal to the market. Holders of baochao could come to the official
7
banks to exchange their government notes for monies like the big-cash, though most
of the time what they could receive were jingqianpiao. Through this mechanism, the
government was able to continue issuing large quantities of baochao in the form of
government expenditure throughout the Xianfeng period since 1854. Later the
government directly deposited (normally in the form of big cash or iron cash) in these
official banks in exchange for certain amount of jingqianpiao and used them directly
in the payment of soldiers’ salaries.
Although the amount of baochao and jingqianpiao in government expenditure might
serve as an estimate on the minimum amount of jingqianpiao circulating in Beijing,
the total number of jingqianpiao issued by those official banks would be difficult to
track. What is certain is that jingqianpiao depreciated quickly in the market. The
original value of the jingqianpiao was fixed at 2,000 jingqian per silver tael. However,
its exchange rates against 1 silver tael fluctuated greatly and hit as high as 45,000
jingqian per silver tael (Figure 4). The exchange rate declined steadily since the mid1861 and was stabilised at around 12,000 jingqian per tael in the mid-1860s. Despite
the fact that jingqianpiao was but a paper without any intrinsic value, the figures
show that it was recognized as a means of payment, and it continued to circulate even
after the Xianfeng period. The continued use of the official paper notes might be due
to the real bullion shortage in the metropolitan area.
IV. Concluding remarks
The preliminary findings show that through the inflationary finance the government
did temporarily manage to cover its fiscal deficit and at least, to keep the functioning
of the central government. However, the monetary measures could only be enforced
within the metropolitan area. After the mid-1860s when the Taiping rebellion was
supressed, the issuance of the debased monies and paper notes was suspended (except
for the coinage of the big cash). Nevertheless, the fiscal and monetary evolution
(decentralisation) was set in motion: the government resorted to foreign loans instead
of currency depreciation to meet its fiscal needs. Local markets in turn invented their
own means for overcoming a shortage of metallic supply, of which the foreign silver
dollar is an example.
8
References:
Chen, Jerome, ‘The Hsien-Feng Inflation’, Bulletin of the School of Oriental and
African Studies (1958), 21: pp 578-586.
King, Frank, H. H., Money and monetary policy in China, 1845-1895, Cambridge:
Harvard University Press, 1965.
Shi, Zhihong, Statitstics on the income, expenditure and stocks of the Board of
Revenue Treasury of the Qing Dynasty (Qingdai hubu yinku shouzhi he kucun
tongji), Fuzhou: Fujian People’s Press, 2009.
Sugihara, Kaoru (ed.), Japan, China, and the Growth of the Asian International
Economy, 1850-1949, Oxford; New York: Oxford University Press, 2005.
Treasury Records of the Board of Revenue, copies in the Library of the Department of
Economics, Chinese Academy of Social Science, Beijing.
The Financial Archive Division of the People’s Bank of China, Selected archive in
modern Chinese monetary history, Vol. I. Late Qing Period (1840-1911),
(Zhongguo jindai huobishi ziliao), Beijing: Zhonghua Book Company, 1964, p.
202.
Peng, Xinwei, Chinese Monetary History (Zhongguo huobi shi), Shanghai: Qunlian
Press, 1954.
Peng, Zeyi, Public finance and the Chinese economy during the late 19th Century
(Shijiu shiji houbanqi de zhongguo caizheng yu jingji), Beijing: People’s Press,
1983.
9
Appendix
Fig 1. Annual coinage and note issue (1851-61), unit: string
Fig 2. Composition of the note issue
16000000
14000000
12000000
Jingpiao
10000000
Baochao
8000000
Iron cash
6000000
Baoquan
Baoyuan
4000000
2000000
0
1
2
3
4
5
6
7
10
8
9
10
11
Fig 3. Market price of big cash in terms of standard copper cash, unit: wen.
Fig 4. Exchange rates between silver and the jingqianpiao notes.
11
Fig 5. The copper cash price of big-cash, jingqianpiao, iron cash and the unit of
account (jingqian), index number, 1853=100.
Fig 6. The silver price of copper cash, big-cash, jingqianpiao, iron cash and the
unit of account (jingqian), index number, 1853=100.
12