Currency reform in 1930s China and the American silver policy: a case analysis of how Chinese monetary policy was influenced by American policy and contemporary East Asian circumstances

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CURRENCY REFORM IN 1930S CHINA AND THE AMERICAN SILVER POLICY:
A CASE ANALYSIS OF HOW CHINESE MONETARY POLICY
WAS INFLUENCED BY AMERICAN POLICY AND
CONTEMPORARY EAST ASIAN CIRCUMSTANCES

by

Feng Liu

A Thesis Presented to the
FACULTY OF THE USC GRADUATE SCHOOL
UNIVERSITY OF SOUTHERN CALIFORNIA
In Partial Fulfillment of the
Requirements for the Degree
MASTER OF ARTS
(EAST ASIAN AREA STUDIES)

December 2009

Copyright 2009 Feng Liu

ii

Epigraph

“Who controls money controls the world.”
- Henry Kissinger

“Give me control of a nation’s money supply, and I care not who makes its laws.”

- Mayer Rothschild
Private Banker

iii

Table of Contents

Epigraph ii
List of Tables iv
Abstract v
Preface vii
Chapter 1: American Silver Purchase Act and its impact on China 1
Chapter 2: Silver issue in the history of the United States 21
Chapter 3: Passage of 1934 Silver Purchase Act 39
Chapter 4: East Asian situation in early 1930s 61
Chapter 5: Process of 1935 currency reform 76
Chapter 6: Domestic factors of 1935 currency reform 104
Bibliography 130

iv

List of Tables

Table 1: Allotment of silver quotas among 5 silver-producing nations 51
Table 2: Military & debt expenditure of Nanjing nationalist government 107
Table 3: Constitution of Nanjing government’s main tax revenue 109

v

Abstract

This thesis analyzed Chinese currency reform initiated by Nanjing nationalist
government in 1935. A series of historical material demonstrated that this currency
reform was Chinese government’s response to silver crisis caused by Silver Purchase Act
of the United States. Yet further scrutiny proved that this currency reform move was also
a key component of China’s comprehensive plan in resisting Japan’s highly feasible
invasion following seizure of North-east China. In other words, research on Chinese
currency reform should consider context of early 1930s’ East Asian circumstances. In
addition, further research revealed that currency reform was an organic part of Nanjing
nationalist government’s reform and construction move during the “golden decade”
lasting from 1927 to 1937.
Without American Silver Purchase Act and Japanese invasion, this legal tender
currency reform would still occur; early 1930s’ East Asian circumstances and silver crisis
just precipitated this currency reform. However, American Silver Purchase Act really
excited this currency reform.
During this case analysis, the author tried to uncover connection between a domestic
bill of the United States and a milestone in Chinese monetary history. As this connection

vi
exists today, the author tried to provide a mirror to today’s Sino-American relationship
through the revelation of such connection. This is of primary importance when bonds
between China and the United States are never so tightly linked because of globalization
and current economic crisis.

vii

Preface

This essay is an attempt of reflection on economic connection between China and the
United States in retrospect, intending to provide a historic reference for today’s
Sino-American relation. As to choice of the silver issue, I owe my inspiration to Andre
Gunder Frank’s “ReORIENT: Global Economy in the Asian Age.” In this fantastic work,
Frank told us “money went around the world and made the world go around.” When this
book was first introduced to me by Professor Cooper, this sentence did not make a lot of
sense to me; it just constructed a diagram in which the world was linked by money and
trades. However, after I read some monetary works such as Peng Xinwei’s “History of
China’s Currency,” the picture of “money went around the world” became vivid. Money
not just goes around the world, it also generates different outcome in different parts of the
world. Immense influx of silver, firstly from increased mining in Japan after at least the
1540s, and then from the Spanish empire in America, brought to East Asia by European
merchants to purchase both raw materials and the luxury manufactures, such as silk and
porcelain, altered dramatically the shortage of money and credit in China. During late
Ming period, government tax and other revenues were increasingly collected in silver,
very different from the practice earlier in the dynasty. (Clunas 2004: 128 - 129) However,

viii
deficiency of silver also aggravated Ming government’s fiscal crisis and fostered its
collapse.
Frank tried to topple the traditional point that Europe outpaced the rest of the world by
some special endowments such as industrial revolution, and instead emphasized that
Europe used silver and gold it got from America to squeeze into the fast train of Asian
age and outpaced Asia at last. In other words, there was an Asian Age before 1800, and
the so-called European hegemony is just a phrase made up. Now we are talking about
Asian Pacific age all the time since East Asia seems to be rising following Japan’s
recovery from WWII; now with the subprime crisis putting the United States and
European nations into recession and East Asia looking like a safer harbor in this crisis,
the Asian Age seems to return. In such context, currency is becoming a hot topic, which
not only incurs careful inspection, but also constitutes a key component of new global
competition.
Monetary issues are always at the center of economics, politics and international
relationship. As we know, money was almost the same old, even if not the same old, as
human society is. Money does not just work as medium of exchange to facilitate
commercial activities of human society, but also functions as measure of value, vehicle of
payment, and method of value hoarding. Silver and gold are the two most important
currencies in history. We behold them in different times and places, almost everywhere.
Without silver and gold from the New World, capitalism could not initiate in the

ix
occidental world, let alone its success around the globe. Frank showed us how silver
circulated around the world and drove the world during the first phase of capitalism. As
to gold, it is always an important currency or commodity even until today; in the 19
th

century, with hegemony of Great Britain, the Gold Standard was the pivotal currency
standard in the world, and its downfall synchronized with downfall of British Empire.
Moreover, its downfall was followed by a world-wide fiduciary currency adoption, and
such currency arrangement functions until now and constructs the base for a key arm of
today’s economic control – currency policy.
In contemporary world, monetary issues are not just important within a nation; they
are also focus of international economic cooperation and competition. For instance, the
so-called undervaluation issue of RMB, the Chinese currency, is a spotlight of China and
America diplomacy recently. The United States has claimed China uses its devalued
currency to promote its export for a long time; China’s response is to decline such
“prosecution” and slow adjustment of RMB’s exchange rate.
Our primary purpose of this paper is not to render judgment but to delineate. We
analyze the case of currency reform in 1930s’ China. China’s nationalist government
declared its currency reform decree around 11pm in an evening of 1935 winter, and such
reform seemed to be an emergent solution to deal with repercussions generated by silver
policy of the United States one year ago. Some researchers claimed that American silver
policy was an egoistic move causing this East Asian nation on the silver standard a lot of

x
trouble: currency was being smuggled out, export went down, financial industry trapped
into stop, and economy stepped into recession. They ascribed it to American Senate
Silver Bloc’s short-sightedness and selfishness. However, after careful inspection, we will
find that the currency reform in 1930s China was not just response to silver policy of the
United States, actually it was a response to all political and economic factors in East
Asian and the world, including the 1929 Great Depression. This paper will attempt to
discover the political and economic forces and motives behind the formulation of
American and Chinese policies, to describe their operations by involved parties, and to
analyze the resulting effects and problems.
As a domestic Act, the Silver Purchase Act had its origin within American historic
and economic framework though it was also a response to world economic crisis in 1930s.
But it generated long-lasting influence outside the United States, especially in China. And
China’s currency reform was not just a domestic move – Chinese nationalist government
sought support outside and this reform resulted in change of East Asian environments.
Only if we put China’s currency reform in 1930s’ domestic and international background
and consider all players such as Japan, Britain, could we find out how this currency
reform was driven by factors inside and outside 1930s’ China, and how this reform
shaped China herself and related nations such as the United States and the world.
There might be European hegemony or Asian Age before 1800, and to advance this
discussion on relationship between Orient and Occident better, we need to combine

xi
analysis in a global context with examination on local endowment/factors, and this essay
is such a case analysis attempt with currency, an important factor in economy, as the
center.

1
Chapter 1: American Silver Purchase Act and its impact on China

On June 19, 1934, Franklin Roosevelt Administration passed a bill called the Silver
Purchase Act, which directed the Secretary of the Treasury to purchase silver at home and
abroad until the market price reached US$1.29+ an ounce, or until the monetary value of
the silver stock held by the Treasury reached one-third of the monetary value of the gold
stock. The Secretary of the Treasury was given wide discretion in carrying out that
mandate. In addition, this Act empowered the government to purchase silver from abroad
if it desired to do so. (Froman 1936: 55; Friedman & Schwartz 1963: 484-485)
Then on August 9, 1934, President Roosevelt accordingly declared the nationalization
of silver; this measure required all holders of silver, with exceptions for silver being used
in arts and for silver coins, to turn their holdings in to the U.S. Mint at a price equivalent
to 50.01 cents per fine ounce. Some 110 million ounces of silver were “nationalized;”
another 880 million ounces was newly mined domestic silver. Since the Treasury price
for newly mined domestic silver was higher than the market price, nearly all domestic
silver went to the Treasury and the demand of American silver users was met by foreign
silver. (Friedman & Schwartz 1963: 485) Hence, market price of silver price went up
greatly. In early 1933, silver was sold for as low as 25 cents an ounce (Froman 1936: 54);
the price steadily rose to 67 cents per ounce in April 1935 (Jiang Liangqin 2003: 101).

2
At that time, China was on the silver standard; in other words, silver was currency of
China. Silver purchase by the United States caused serious monetary dislocations in
China. At first, silver was shipped out of China; then shortage of silver severely caused
elevation of silver price. From early 1933 to the end of 1934 the market price of silver
rose nearly 75 percent, and by mid-1935, under the impact of the silver-purchase program,
price of silver had nearly trebled. (Friedman & Schwartz 1963: 489)
The initial pressure was felt as a decline in exports relative to imports. Then the deficit
in the balance of payments had to be met by export of silver, which in its turn tended to
contract the internal money supply. Since money was the core of economic activities,
economic difficulties happened. If we borrow a popular word from current financial
reports, a liquidity shortage occurred. (ibid.: 489-490)
Within 5 months from June 1934 to October 1934, silver drained out of China in large
quantity. Silver shipping out of Shanghai reached up to 222.9 million Chinese Yuan, 3
times of 1933’s total annual outflow. Silver reserves in all banks in Shanghai, Chinese
financial capital, went down from 589.4 million in March 1934 to 335 million Chinese
Yuan in December 1934. Another 180-million-Chinese-Yuan silver was shipped out of
China from 1934 to 1935. Currency shortage due to silver drain caused terrifying
deflation. Shanghai’s price level in 1935 went down by 23.9% compared to in 1932.
According to documents from Chinese Legation to American State Department on 1935

3
February 1, the impact on economy was disastrous. (Counselor Committee of People’s
Bank of China 1991: 117-118)
1) Net export of China’s silver in 1934, excluding that from smuggling, was
257,000,000 Yuan (Note: Yuan was currency unit of China, and 1 Yuan corresponded
to a standard silver coin). And five-sixth of them was shipped out within the
less-than-4-month period after June 19, the day of announcement of the Silver
Purchase Act to October 15
th
, when Chinese government imposed a heavy silver
customs duty to block drain of silver. Export of silver in 1934 was 5 times of that in
1907, in which the highest silver outflow was recorded ever before.
2) Silver stock in Shanghai reduced from 544,000,000 Yuan at the end of June 1934 to
312,000,000 Yuan at the end of January 1935. Stock in other main silver metropolis
also went down in proportion.
3) With drain of silver, currency became in short supply and credit went tight. 1934’s
first half financial market enjoyed an annual interest rate of 6%; however, on January
1, 1935, the interest rate climbed up to 26%. To provide desirable liquidation during
the Chinese lunar year festival, the Central Government proclaimed a relatively low
interest rate, but it did not work since loan was almost impossible no matter what
mortgage and interest rate were used (financial intermediaries did not have currency
to lend out). Financial institutions sold foreign reserve to get silver, and annual

4
interest rate for one-month loan was 27.4% now (a pretty high rate for such a short
term loan).
4) Although the whole world was recovering from the world-wide Depression, China
was undergoing a terribly deterioration during the last 6 months. Current situation is
the worst since the beginning of the Great Depression. Net foreign trade in the second
half of 1934 reduced by 16% compared to its counterpart in the first half of 1934.
Since 1934 July, price of government and corporation bonds fell off by 10%; value of
real estate went down by 15%; stock price dropped by 7%. Bankruptcies overrun
everywhere, even beating some giant enterprises. The Central Government tried to
save some banks and enterprises through the 3 largest national banks, the Central
Bank, Bank of China, and Jiaotong Bank; but such saving action only got a 19% lose,
and the wounded financial industry and credit situation will continue to hurt
commercial activities.
5) Tight credit harassed governmental finance, and almost paralyzed bank loan. Tax,
especially customs duty, sensed a more and more severe threat, and construction plan
was impacted. For example, project of key bridges for the railroad connecting
Hangzhou and Ningbo was paused since bonds for this project could not be issued
(without potential buyers).
6) All the signs indicated appreciation of currency was really a disaster to China because
it caused deflation and China was experiencing widening economic difficulties.

5
In summary, drain of silver resulted in economic difficulties in 4 aspects: People got
into a panic due to deteriorating economic situation; balance of payment was greatly
impaired due to enlarging trade deficit; tight credit or shortage of currency supply led to
insufficient liquidation, which forced banks, money shops or silver shops to go out of
business one after another; price index fell sharply, and enterprises bankrupted due to
deflation.
Why a domestic act in the United States caused such a disaster in China? The direct
answer was simple, because it involved currency, the key exchange medium and measure
of value in economy and finance. In short, though silver was just a commodity in the
United States, it was the currency in China. Therefore, China’s foreign exchange, capital
movement, and trade were dictated by the ratio between silver and foreign currencies.
Obviously, rising price of silver in the world market meant appreciation of Chinese
money compared to other currencies, or a high currency exchange rate. Theoretically, a
high exchange rate hurts exports and encourages imports, and demands capital inflow to
balance this country’s payments. Since late Qing, China had a trade deficit, and in theory
had to export silver to balance it. Yet silver flooded into China in 1920s because capital
inflow, including foreign investment and government loan plus remittance from overseas
Chinese. These silver inflows not only balanced the trade deficit but also sustained silver
import. (Shi Yufu 1984: 258) However, with the repercussion of the worldwide Great

6
Depression, this vital capital inflow grew downwards. Hence, the only solution that
China could use to cope with her expanding trade deficit was to export silver.
Outflow of silver necessarily caused reduction of currency supply, which would tighten
credit and caused deflation, resulting in difficulties for commercial activities and causing
recession and even economic crisis. To make situation worse, China was a country who
did not produce silver herself, which meant China had to import most of the silver she
used. Even when her trade balance was not in deficit, China had to import silver to meet
demand of domestic economic activities. Thus, any increase in silver price was
disadvantageous to her. (Froman 1936: 55) American Silver Purchase Act not just caused
rising price of Chinese currency, but an incessant rising, which was translated into an
increasingly high exchange rate, and this definitely made the situation much worse.
(Elliston 1935: 674)
Exchange rate is a key topic in economy. In eyes of economists, exchange rate was
determined by the forces underlying the international balance of payments, and its
movements reflected changes in those forces: the comparative advantage of China and
the outside world in various lines of production; the relative price levels in China and the
outside world; and movements of capital between China and the outside world. A
doubling of the internal price level in China, for example, with no change in internal
prices within the United States would make Chinese goods twice as expensive in America
at any given exchange rate and so reduce the amount America would desire to import

7
from China. It would make American goods half as expensive in China relative to
domestic goods and so increase the amount China desired to import from America. It
would mean that a given number of dollars transferred by overseas Chinese, for example,
to their families in China would equal to less silver. (Friedman & Schwartz 1963: 61)
More importantly, exchange rate is a refreshing issue in international economic
activities especially in today’s global age. In 1985, 5 main powers signed the Plaza
Accord to reduce the soaring trade deficit of the United States by devaluation of US
dollar and appreciation of Japanese Yen. Appreciation of Japanese currency trapped
Japanese economy into a more-than-ten-year-long recession. Similarly, in early 2000s,
the United States exclaimed that China set her currency at an unreasonably low rate and
caused an enlarging bilateral trade deficit, and China responded that she did not
manipulate her currency exchange rate.
In 1934, China’s currency to other currencies, i.e., currency exchange rate, was set
according to silver price in main silver markets such as London and New York exchange.
To be more precise, exchange rate of China currency, silver, was dependent on difference
between Shanghai and London or New York exchange after consideration of handling
cost such as transportation and interest. If silver price in Shanghai was higher than in
London or New York, then silver would enter China; otherwise silver leave China. Before
Nanjing government set a formidable silver customs duty, the flow of silver was almost

8
free; and trading amount of silver in Shanghai, was determined by market price and
speculation activities. (Counselor Committee of People’s Bank of China 1991: 241)
Actually, China was by no means the only country affected by American silver
purchase program though the Chinese crisis was the most dramatic. For example, Mexico,
a major silver producer and user, was forced to proclaim a bank holiday in April 1935
because the market price of the peso had risen above its monetary value, and Mexican
people began to ship their silver money out to the United States. To guarantee
stabilization of currency, Mexican President declared a bank holiday to call in the
circulating silver and exchanged paper money for it, and clamped an embargo on silver
coin exports. Similar events occurred in numerous other countries throughout the world.
(Friedman & Schwartz 1963: 491)
Some researches considered American Silver Purchase Act to be American Senate
Silver Bloc’s move to transfer economic difficulties caused by the Great Depression.
Claim of Senator Wheeler was used as evidence – “If there is one more factory opened in
Shanghai or India, in the United States there will be more unemployment.” (Jiang
Liangqin 2003: 100-101) Yet later analysis will show that American Silver Purchase Act
was more a domestic bill, and a compromise between President Roosevelt and silver
Senators, intending to pull the United States out of the Great Depression though
proponents of this bill such as Pittman asserted that this act would bring mutual benefit to
China and the United States.

9
Pittman’s logic was like this – anything that might be done to increase the price of
silver would advance purchase power of Chinese currency, hence producing a wholesome
effect upon efforts to China and India; therefore it could benefit the United States. But
such advocacy was not correct. As we have analyzed above, China was a large importer
of silver, and she did not use the silver itself to pay for her imports of merchandise, on the
contrary, China had to export more merchandise than she imported in order to purchase
silver. (Froman 1936: 60)
Moreover, even disregarding of the basic fact that China was a silver importer but not a
silver producer, Pittman’s assertion was wrong. Research of USC economics professor,
Jeffrey B. Nugent indicates that devaluation, not appreciation of currency, stimulates
income growth of a country. Professor Nugent’s research also reveals that continuous
devaluation can be extremely beneficial to development even when a number of other
countries devaluate at the same time. (Nugent 1973: 1110, 1130) During the Great
Depression, a lot of countries “competed” in devaluation of their currency to “transfer”
their economic crisis to other countries; finally, Great Britain, the United States, and
France had to sign a tripartite agreement to stop such “competition” when facing Nazi
Germany’s looming threat. (Oye 1985: 193-196) Actually, a similar situation occurred in
South-East Asia during 1998 financial crisis; most nations competed to devalue currency
to reduce repercussion of the crisis. As a matter of fact, rise of silver price did not
promote American export to China, but reduced it. Henry Morgenthau, Secretary of the

10
Treasury, informed Pittman that exports to China had declined at a greater rate than the
fall in the exchange value of her money. Moreover, Morgenthau convincingly
demonstrated that China paid for her imports with her exports of goods and services, and
that her diminished purchasing power owed more to the civil conflict, the West’s inability
to absorb large quantities of Chinese products, and her inept monetary policies than to the
price of silver. (Sewall 1975: 356-357)
However, these facts and arguments had little effect on Pittman. Despite his rhetoric,
Pittman’s “chief objective with regard to silver” was an increase in the domestic price of
silver. Pittman could claim that people in silver standard countries were unable to
purchase in countries like America when the exchange value of the silver money was
extremely low – “China and South America cannot buy from us at our prices so long as
we hold down to so low a point the exchange value of their silver money.” Indeed
Pittman knew clearly a drop, instead of a rise of silver price would benefit China. During
late 1920s, when the silver price dropped, “China has ceased to purchase from the United
States all forms of manufactured articles that it may dispense with, and is rapidly
becoming highly industrialized through the protection afforded to Chinese manufacturing
institutions by the depreciated exchange value of silver.” (Pittman 1934: 35-36) And he
also could remain insensitive to criticism of his thesis because he had advanced it only to
mobilize additional support for his campaign to restore prosperity among western miners.
According to his outline, American trade would expand only if the world price of silver

11
continued to rise. Yet once the domestic silver price reached a satisfactory level, Pittman
could honestly exclaim that he no longer cared about the world price so long as the
domestic silver price did not decline. His behavior throughout the 1930s clearly
demonstrated that he consistently attached a higher priority to his constituents’ need for a
higher price for domestic silver than he did to the enlargement of the China market as an
outlet for American industrial surpluses. (Sewall 1975: 357)
Then why President FDR accepted this bill? As a matter of fact, Roosevelt did not
believe in Pittman’s arguments. Throughout 1933, the President had been under heavy
pressure from congressional inflationists to take some decisive action. Opposed to the
issuance of paper money, he had chosen in October to try to boost commodity prices by
purchasing gold, the yellow metal backing legal tender, at increasingly higher prices.
However, congressional inflationists continued to insist that something be done for silver.
Rather than antagonize the politically powerful silver bloc in the Senate, the President
yielded to their pressure and accepted a purchase program that would provide a
satisfactory subsidy, appease the mild inflationists, and undercut the demands for a more
drastic measure. This decision, based partly on expediency and partly on Roosevelt’s
definition of broker politics, did not alter his firm conviction that the depression stemmed
from internal dislocations and could be cured only by domestic solutions. (ibid.: 360)
Meanwhile, Pittman continued to insist that the volume of American exports was
directly related to the price of silver, yet his attitude was influenced by more than his

12
concern for the China market. By 1934, he had substantial investments in several of
Nevada’s silver mines. Any rise in the price of silver benefited his personal finances. Of
more importance was his strong commitment to securing benefits for constituents. This
consideration took on increased importance in 1934 when he had to stand for reelection
and defend himself against an opponent who accused him of not doing enough for
Nevada silver interests. Pittman finally turned to Roosevelt and personally urged him to
compromise so as not to embarrass silver Democrats running in the fall. (ibid.: 362 - 363)
President Roosevelt finally accepted Pittman’s proposal and drafted a discretionary bill.
This act, formally introduced on May 22, quickly sailed through both houses of Congress
and became law on June 19. Pittman praised this bill as “a magnificent compromise” and
“a great victory.” That bill was the Silver Purchase Act we spoke of at the beginning of
my thesis. (Sewall 1975: 362 - 363)
As we said above, this bill generated a disastrous outcome in China, which was labeled
“1935 silver crisis” in some Chinese economic history works. This silver crisis forced
Chinese government to use all methods to block the outflow of silver. They turned
Roosevelt Administration for help, and Roosevelt Administration actually did not turn a
deaf ear to such earnest plea. In August of 1934, immediately after President Roosevelt
declared the nationalization of silver, Chinese government informed the United States of
the impact of the silver purchase in China. (Counselor Committee of People’s Bank of
China 1991: 116-118) In May 1935, U.S. Treasury issued an order that prohibited the

13
import of foreign silver coins. However, such order was ineffective since the coins could
be melted down outside the United States and the bullion could be shipped in instead of
the melting being done, as earlier, in New York. (Friedman & Schwartz 1963: 491)
Obviously, the solution was for the United States to stop silver purchase in world market
in high price; yet such request was doomed to a decline from Roosevelt Administration
considering political situation in Washington.
Therefore, Nanjing nationalist government turned to other solutions. One of them was
to impose heavy tariff on silver export. Silver price in 1920s and early 1930s was
fluctuant due to many factors. A case in point was Indian decision to give up the silver
standard in 1927, and left-over silver was being dumped into China in such large amount
that in 1930 the Nanjing government had actually put an embargo on the import of
foreign silver coin and contemplated the imposition of an import duty. (Elliston 1935:
666) In April 1934, before June 1934 – the month of the Silver Purchase Act, China had
begun to collect silver exports duty. This charge was an effort to isolate fluctuation of
silver price in world market, stabilizing value of Chinese silver money. According to
“silver coin mint decree” effective in March 1933, silver coin in circulation was charging
2.25% for seigniorage. To keep this seigniorage, Chinese Government imposed a tariff on
silver export, regulating that, from 1934 April 6, a 2.25% customs duty was collected on
exported silver. The authorities thought that this new item of taxation would discourage
silver export and help stabilize silver currency. And it did deter outflow of silver.

14
However, when world market price of silver went up incessantly, a profit was possible
even after this 2.25% tariff deduction; then this silver export tariff did not work. When
the United States introduced the Silver Purchase Act in June 1934 and declared
nationalization of silver in August 1934, this silver export tariff equaled to zero in
blocking drain of China’s silver.
On 1934 October 14, Chinese Ministry of Finance announced “tariff increase decree on
silver export,” which imposed a disruptive tariff on silver export from the next day. This
decree regulated a net 7.75% tariff on silver coins, and a net 10% tariff on silver bullion.
Moreover, when silver price in London exchange market was higher than its counterpart
in Shanghai plus aforementioned 10% or 7.75% tariff increase, an equalization fee was
charged to guarantee no speculation on silver export could make profit. Theoretically,
such disruptive silver export tariff and equalization charge would inhibit outflow of silver,
and China’s silver crisis would settle down. But in reality, they only worked for a
moment; soon silver continued to drain out of China and China’s economy carried on the
spiral of deterioration. (Shi Yufu 1984: 272 – 273)
The difficulties in realizing an effective control were three-pronged. First was silver
smuggling, especially Japanese army’s military smuggling in North China and Yangtze
Delta. Second was Nanjing government’s lack of authority over both foreign and Chinese
banks. (Elliston 1935: 675) The last one was ineffective execution of the equalization
charge. (Shi Yufu 1984: 274)

15
Japan acquired China’s North East region, i.e. Manchuria in 1931, and was pursuing to
detach North China from Nanjing under cover of an autonomy movement. Obviously, a
weak central government in China was congruent with Japan’s interests; and smuggling
silver out of China not just weakened Nanjing government, but also aided Japan’s arms
expansion by providing capital acquired through American silver purchase. In early 1935,
Japan had forced Chinese central army, the army under direct control of Nanjing
government, out of North China. A series of Accords between Japan and Nanjing
government had made North China a semi-autonomy area, and Nanjing Government lost
effective control of this area. All these conditions promoted a rampant silver smuggling in
North China. For example, in May 1935 Japanese troops shipped 150,000 Yuan value
silver daily out of North China. In addition, in Chongming Island and Haizhou of Yangtze
Delta, Japan smuggled about 200,000 Yuan value silver out every day. (Yao Huiyuan
1997)
Impact of Japanese silver smuggling could also be verified from American import data.
During the 9 months from January to September 1935, the total value of silver imported
into the United States was 197,695,000 US dollars, while the entire world production in
the same year was valued at 120,000,000 US dollars. This meant a huge gap, and this gap
could be explained by Japanese silver export. The total silver production of Japan in 1935
was only 8,000,000 Japanese Yen, or 2,232,000 US dollars, but even in September 1935,
one month of this year, the silver exported by Japan to London was valued at 20,793,000

16
Japanese Yen, or 5,801,247 US dollars. All data pointed to one fact: Japan smuggled
silver out of China and exported it to the world market. (Russell 1992: 93-94)
Indeed, Japan’s smuggling in North China not just involved in silver; it included other
imported goods, resulting in reduction of Chinese customs’ revenue, which was used by
Chinese government as collateral for foreign loan, of which England and America had a
large part. Thus Great Britain and the United States expressed protestation to such
smuggling, but got no result. Just in one month of 1936 April, customs revenue in North
China lost 8 million Chinese Yuan. (Zheng Huixin 2002: 61)
Though the smuggling problem seemed insoluble, Nanjing government moved
energetically to deal with the second problem, i.e. their lack of control over banks. Banks,
like smugglers, at first found irresistible the temptation to profit by shipping silver out.
For instance, in April 1935, after deduction of export tariff and equalization charge, a
profit as much as 12% could still be attained on exporting silver out of China. This was
still a sizable profit. In 1930s’ China, foreign banks were even more important than native
ones. Furthermore, foreign banks enjoyed extraterritorial privileges, which meant they
were not under Nanjing’s jurisdiction. Knowledge that the foreign banks were not
cooperating to prevent speculation in exchange was aired freely in the Chinese press in
September 1934. But latterly some degree of cooperation appeared to have been won.
Chinese government’s pledge to European and American banks not to play the exchange
market got positive response. In so far as the Chinese banks were concerned, Chinese

17
Ministry of Finance had obtained control over the 2 leading Chinese banks, Bank of
China and Jiaotong Bank, former Central Banks in Beijing Republican regimes through
government bonds injection plan. (Elliston 1935: 675-676) The acquisition of control
over Bank of China and Jiaotong Bank will be discussed in detail in later chapter on
China’s financial reform, of which 1935 currency reform and acquisition of control over
the 2 largest banks were vital.
Though Japanese banks in China did not cooperate with Nanjing, Chinese Central
Bank’s survey conducted in October 1935 revealed that, silver reserved in Japanese banks
was less than 4% of the entire silver reserve in China. (Yao Huiyuan 1997) While in
Shanghai, 3 largest Chinese Banks, Central Bank, Bank of China, and Jiaotong Bank,
held nearly 68% silver stocks while another 17% was held by other foreign banks willing
to cooperate. (Elliston 1935: 676)
Equalization fee was designed to inhibit silver outflow. However, with rampant silver
smuggling, exchange stabilization committee, the special institution set up 5 days after
announcement of “tariff increase decree on silver export” to administer foreign exchange,
deliberately set up a low charge, hoping to get more tariff revenue by ‘attracting’ some
silver smuggling. Thus tariff rate only arrived at 10% at first days; equalization charge
was reduced to a common export tariff, thus losing its function of inhibiting silver
outflow. (Shi Yufu 1984: 274) Obviously, Nanjing government had to seek other solutions.
Chinese Ministry of Finance had an attempt to transfer from the silver standard to the

18
gold standard. However, such attempt was almost impossible at that time. Supply of gold
in the world market was already in severe shortage; even Great Britain was forced to give
up the gold standard in September 1931. (Nichols 1951: 297) China tried to get gold
reserve by exchanging her silver with the United States. But response on 1934 October 2,
was that China could acquire gold in the world market if she needed that. (Russell 1992:
51) With the ever-worsening economic situation and failure of Nanjing government in
blocking drain of silver, decisive action had to be taken immediately. And more and more
signs indicated that Chinese nationalist Government was considering a fiduciary currency
reform.
Finally, around 11pm in the evening of November 3, 1935, Chinese Ministry of
Finance proclaimed “Legal Tender or Fa Bi Decree” (Sometimes I translate Fa-Bi as
‘legal tender’ or ‘fiat money’ since this currency is a fiduciary standard or paper money).
This bill plus the following edicts issued since November 4 nationalized silver in
circulation, officially abandoned the silver standard, and replaced it with a managed
currency standard. The new standard specified that a fractional silver reserve be held by
the bank of issuance, but it gave the public no right to redeem notes or deposits in silver.
(Counselor Committee of People’s Bank of China 1991: 181-182) Content of these
currency reform decrees were summarized as follows:
1) A new paper money, Fa Bi, shall take the place of silver as currency.

19
2) The existing banknotes shall be withdrawn and replaced by this single legal tender,
or Fa Bi.
3) This note issue will be the monopoly of the Central Bank, Bank of China, and
Jiaotong Bank.
4) A special issuance reserve management committee will be established and charged
with maintaining foreign reserve and the stability of the currency.
5) The new paper currency, Fa Bi, will be inconvertible to silver or gold, but is
exchangeable with main foreign currencies.
6) All silver will be nationalized by exchanging with the new paper currency in
financial institutions designated by the special management committee.
7) To stabilize this new paper currency, the 3 banks, Central Bank, Bank of China, and
Jiaotong Bank will buy and sell foreign currencies with no limit in open market.

These decrees marked China’s farewell to her long established metal currency tradition
and a fiduciary currency age in China. Even if Nanjing nationalist government tried to
restore a currency system backed by metal and foreign reserve due to hyperinflation and
their military collapse in late 1940s, fiduciary currency system was established in China
and lasted until now. Therefore, this event was a milestone in Chinese monetary history,
and deserved a careful review. And our research indicated, this event was a historical

20
event involving many forces, and forces shaping this currency reform also shaped then
situation in East Asia.

21
Chapter 2: Silver issue in the history of the United States

People generally agreed that no problem has encountered more diversity of
interpretation in democracies than the theory of money and monetary policy. Monetary
problems are as fascinating as they are perplexing, combining as they do a rich mixture of
technical economics, interactions of political and economic factors, and even the
psychology of symbols and beliefs. The various “solutions” have come protected by
strong political, economic and ideological interests. In the United States, silver money
had frequently become involved in domestic political controversy. (Macesich 1990: 1)
As to the cause of the 1934silver purchase act, a lot of researchers believed that it was
initiated by President Franklin Roosevelt in response to the economically small but
politically potent Senate silver bloc. In other words, the Silver Purchase Act was the end
product of political pressure by the silver lobby to “do something for silver.” President
Roosevelt supported silver purchases primarily to assure the support of senators and
representatives from silver and farm states for other New Deal legislation. (Friedman
1992: 62)
But what was the origin of “do something for silver?” This had to be traced back into
the first act of American currency. Silver purchase act was a natural development of
American currency history, and component of Roosevelt’s economic saving efforts.

22
Moreover, review of American monetary history is not just to trace origin of the silver
issue but also to find out some helpful patterns. For example, in 1933, silver proponents
tried to advance silver interests through international conference. This was not totally
new “trick” of pro-silver groups. In this aspect, there were at least 2 precursors. One is
the 1918 Pittman silver Act, where Senator Pittman used the British request for help to
advance his silver bill; the other was an international bimetallic conference held in Paris
under the provision of the 1878 silver act. (Everest 1950: 3) To researchers, a pattern
means a repeated action instructive in the future; moreover, these silver acts were of
importance to judicial practice. Considering the United States adopted Anglo-American
law system, which relied heavily on precedents, it was significant at finding precedents
for unconventional undertakings as useful tactical weapons.

Early monetary history and bimetallism in the United States
Currency standard in the United States was bimetallism since her independence. In
1787, the United States constitution clarified that no state could use currency that was not
gold or silver to pay back debt; i.e., this bill set gold and silver synchronously as standard
of American currency. In other words, the United States adopted bimetallism ever since
her independence. This was a natural move since most western civilizations used
bimetallism when the United States won her independence. (Bai Junnan 1972: 21)

23
Alexander Hamilton, the first United States Secretary of the Treasury, chose to mint
gold and silver coins at the same time and have both of coins in circulation. The first
coinage act, Coinage Act of 1792 established the dollar as the unit of money in the United
States, declared it to be legal tender convertible to silver or gold. (ibid.: 21) The Act
defined the mint ratio between gold and silver as 15 to 1, i.e. 15 units of silver was
defined to be equal of 1 unit of gold. Any person could bring gold or silver to the federal
government, and have it coined free of charge, or for a nominal fee for equivalent value
of coin – the so-called free coinage, a provision that caused tumults later.
A lot of monetary issues could find their origin in the Coinage Act of 1792. A case in
point was the statutory price for an ounce of silver; in 1934 Silver Purchase Act, a
condition to stop silver purchase was when market price of 1 ounce of silver reached
US$1.29 per ounce. This was defined in the 1792 Act. As it was shown above, 1792 act
defined 371.25 grain pure silver equaled 1 US dollar, while 1 ounce is 480 grains. Thus, 1
ounce of silver was 480/371.25 = 1.29 US$.
Yet the most important thing about the 1792 Act was that, this Act authorized free
coinage of both silver and gold at the specified ratio of 15 to 1. Later we will see that,
alternation between the silver standard and the gold standard in practice could ascribe to
the specified ratio; and cancellation of free coinage of silver caused sentiment. These 2
provisions were origins of many issues during 19
th
and early 20
th
centuries in American
monetary history.

24
As a matter of fact, bimetallic currency system had vulnerability in itself – only if
market ratio equaled to their mint ratio, could bimetallism be maintained. While mint
ratio was designated by authorities, market ratio was determined by classic economic law
– supply and demand. However, silver is usually a by-product of copper, zinc, lead, and
gold mines, and this doomed an inflexible supply of silver, leading to low cost of silver
mining and increasing abundance of silver compared to gold. (Everest 1950: 7) In other
words, this translates into a varying market ratio between silver and gold. Only if mint
ratio catches such vicissitude, there is almost always a gap between the 2 ratios.
Obviously, nominal bimetallism usually manifested itself as alternation between the 2
designated metal currencies.
Coinage Act of 1792 defined mint ratio between gold and silver to be 15 to 1, and this
mint ratio was very close to market ratio at that time. However, with expansion of silver
production, silver devalued faster compared to gold. In 1803, Napoleon declared that
mint ratio for new French franc is 15.5 to 1. The difference between American mint ratio
and market ratio created a chance of arbitrage. As such, a merchant could use 15,000
ounces of silver to buy 1,000 ounces of gold in America, and then use these 1,000 ounces
of gold to get 15,500 ounces of silver in France; during this arbitrage process, the
merchant got a net profit of 500 ounces of silver. Therefore, the difference between mint
ratio and market ratio led to the flow of gold to France from America; and the United
States soon experienced a shortage in supply of gold, while silver was in flood in the

25
United States. This action has usually been referred to as the outcome of Gresham’s law,
which – simply stated – means that “bad money” tends to drive out the “good,” or the
cheaper money tends to drive out the dearer. Thus, from 1803 to 1834, the United States’
currency system was only a nominal bimetallism, since in practice silver drove out gold
and became the actual currency standard. (Bai Junnan 1972: 21, 22)
In 1834, new coinage legislation was introduced in recognition of the changed world
market gold-silver price ratio, which was about 15.625 to 1. However, this coinage act
did not set a ratio of 15.625, but a mint ratio of 16 to 1. This ratio of 16 to 1 was a
“golden club” used by then President Andrew Jackson and his supporters to belabor their
hated enemy, then central bank – Bank of the United States. And this act finally resulted
in the failure of the bank to obtain a new charter when its original federal charter expired
in 1836. (Friedman 1990: 1162) Obviously, monetary issues were always entangled with
politics in the United States; the coinage act of 1834 was not, and would never be, the last
case.
With a mint ratio of 16 to 1, the gold content every dollar equaled to was reduced to
23.22 grain from the original 24.75 grain, but the silver kept the same. As we said just
above, this mint ratio undervalued silver. The result was that gold coins became popular
while silver coins began to disappear; even the smallest par value silver coin that equaled
to 5 cents, disappeared, and lack of small change caused a lot of inconvenience in
people’s everyday life. (Bai Junnan 1972: 22) In addition, the California Gold Rush of

26
1840s sparked a new and extraordinary supply of gold; Gresham's law began to work
more actively than ever. By 1850 the people of the United States found themselves with a
single standard of gold, but without enough silver coins to serve for necessary exchanges
in retail transactions.
In 1853, a coinage act was introduced to lower the weight – and thus the silver content
– of all the silver coins except the dollar and three-cent piece by approximately 7 percent.
By early 1854 this debasement of silver coin had ended the coin shortage. The Mint Act
of 1853 reduced the amount of silver in the fractional coinage to a level where small
change circulated once again. In addition, this act established a fiduciary coinage (value
of silver contained in silver coins was less than its face value) in the United States for the
first time, and was a practical abandonment of the double (silver) standard in the United
States. (Laughlin 1898: 75-77)
In early 1870s, silver production in western states was increasing; at the same time,
some European nations, such as Germany, Sweden, Denmark, and Norway, introduced
the Gold Standard and sold their silver in the world market, therefore, silver price
compared to gold began to fall. With an identical mint ratio, it was profitable to purchase
silver and execute “free coinage” of silver, and the result was a flood of silver coins.

27
“Crime of 1873” and reemerging silver issue
Obviously, the above history narrated such a pattern: bimetallism, in practice, meant
alternating silver and gold standard. But until then, we could still claim, to a large extent,
that such alternation was a monetary issue with no much sentiment involved. However,
since the Coniage Act of 1873, silver issue was not a pure monetary issue again; it was
deeply entangled with politics and sentiment.
In the first chapter, it seemed that pro-silver senators were “evil,” especially
considering the disaster the Silver Purchase Act caused in China and other nations, and
their maneuvering in forcing President FDR to accept their proposal; however, history of
the United States dictated that silver agitation was a natural corollary of the framework of
pro-silver people’s monetary thinking, which was conditioned partially by their economic
interests but principally by their chronic hatred of Eastern high finance of the monetary
regime on which its hegemony was based and which, from their debtor viewpoint,
seemed to limit unreasonably and oppressively the amount of available cash. (Johnson
1967: 162) In other words, the silver issue brought men with opposed and deeply held
convictions involved in a struggle monetary beliefs, economic principles, political
responsibilities, and regional loyalties. (Brennan 1969: 124) It can not be summarized in
a simplified phrase “politically potent silver gang’s selfish move.”

28
In the following iteration, I would try to cut as more details as possible to present the
perplexing silver issue in late 1800s and early 1900s, which began from the 1873
enactment.
In February 1873, the United States Congress enacted the Fourth Coinage Act, which
removed the free coinage provision of silver. The omission of any mention of the
standard silver dollar in the Act actually ended the legal status of bimetallism or the silver
standard.
The 1873 act reflected the desire to have a "sound money," gold, and the outrage of the
financial community, holders of government bonds, and some economists at the inflation
produced by the departure from a specie standard – when the United States issued the
so-called greenback notes, paper money without gold or silver backing, during the Civil
War (1861-1865) to cope with financial difficulty. (Friedman 1990: 1164) And supporters
of “Free Silver” included farmers in the Midwest, miners in the West, and Southerners
still chafing against federal government control, i.e. people from the more rural areas of
the United States, who were debtors and would benefit from inflation. They named the
Coinage Act of 1873 “Crime of 1873.”
Before moving on, we need to explain why farmers joined silver producers, who
understandably denounced fall of silver price, as inflationist since this was a key
background of 1934 Silver Purchase Act, and this explained a key difference between
Chinese people and American people in their attitude toward inflation. In fact,

29
commercial society prefers inflation to deflation. Like other western civilizations, the
United Sates was a commerce-oriented society. To such society, deflation usually means
disaster since deflation usually means stagnation of commercial activities.
The logic is quite simple. Sellers get more profit if price level has a trend of going up,
while fall of price level forces sellers to sell goods/services with a lower price or give up
some business opportunity. Moreover, people have to pay back debt with a higher cost
when price level goes down. Thus sellers of goods and services are almost invariably
inflationist. As to consumers, most of them were employees of enterprises, which were
definitely sellers. Deflation would generate difficulties for their employers, who would
lay off employees to under economic crisis; such unemployment activities evidently were
more disastrous to their employees than the beneficial fall of price level. Hence, deflation
is more detested in a commercial society than inflation especially during economic
recession.
Besides sellers of goods and services and their employees, farmers were also
inflationist in the United States. The reason was two folded. Besides as sellers of agrarian
produce, generally speaking, farmers were net monetary debtors; thus they were twice
harmed by a fall in prices, which inhibits their sales of harvest and raises the real value of
their debt. Thus American farmers were inborn inflationists.
As we know, silver is significant when it functions as currency compared to as a
commodity. If ‘price’ of currency goes up, price level will go down; likewise price level

30
will go up. As to ‘price’ of currency, it is also determined by the classic economic law of
supply and demand. Therefore, when silver was currency instead of gold, there were
more supply of currency, and ‘price’ of currency would go down, and price level will go
up. Hence, farmers were natural allies of silver producers in adoption of silver standard.
Contrary to the inherent tendency of American people of eluding deflation; Chinese
people considered inflation as a key sign of economic crisis. Historically, Chinese people
suffered a lot from devaluation of currency and corresponding hyperinflation; thus they
would rather choose deflation even if modern economics has told us both are not good.
Traditional Chinese historians would call a period “golden age” when the price level was
low. In Chinese history, war often caused hyperinflation, while peace enjoyed a drop of
price level. Such phenomenon was not completely caused by expansion of production
capability. Instead, it was caused by Chinese people’s hyperinflation-fearing psychology,
under which Chinese people reduced their consumption as low as possible. In an agrarian
society like traditional China, deflation was not as terrible as in western nations, and
Chinese people at least could enjoy inexpensive goods. As we said above, in
Anglo-American nations, the situation is opposite. Britain, the first industrialized country
and cradle of capitalism, almost did not ever see hyperinflation where price suddenly
went up by 10 times, which was common in Chinese history. Deflation caused economy
trapped into stagnation. Hence deflation was usually deemed to be more horrible than
inflation in western economists’ eyes, and their remedy for economic crisis often included

31
devaluation of currency to cause mild inflation, which facilitated expansion of production
and increase of profit. (Peng Xinwei 1965: IXX) This social psychology difference was a
pivotal difference we need to bear in mind in understanding Chinese and western
currency system. As such, devaluation of silver in late 1920s was often deemed to be a
disturbance in China even though such inflation actually helped China escape from the
first blow of the Great Depression. That was also why the legal tender system established
through 1935 currency reform soon collapsed when paper money was over-issued.
Moreover, at all times, sellers tend to be relatively few in number and to be organized,
so that they have more political clout than the dispersed consumers who benefit from
declining prices. That, in 1930s, was especially true of producers of silver, who clearly
had much to gain by the adoption of a silver standard. Though few, they were politically
influential because the sparsely populated silver states had the same representation in the
Senate as the densely populated urban states. (Friedman 1990: 1171)
Some researchers emphasized the fact that mining industry was not a significant
industry providing a lot of employment opportunities, and the 1934 silver purchase act
was passed because senators from the 7 silver-producing states composed of a large part
of the body of the Senate. However, elimination of status of silver as currency really
caused perplexity to American economy. The act of 1873 not just caused price of silver to
go down. According to analysis of the renowned monetarist, Nobel Laureate Milton
Friedman, the direct aftermath of the 1873 act was fall of silver’s price compared to gold;

32
furthermore, elimination of silver’s role as currency not only caused lingering lower price
level in the United States, but also influenced price level of the gold standard nations, the
main economic powers at that time. (Friedman 1990: 1171 - 1177)
It was not for a year or two that the fact of de-monetization was popularly known, but
centering on the restoration of the silver standard or the bimetallism began a series of
campaigns – altogether called “Free Silver” – that influenced deeply America. “For the
next twenty-seven years, the silver question bedeviled the politics and the finances of the
United States.” Silver never won back the place it would have enjoyed had the Act of
1873 not failed to include provision for the coinage of the standard silver dollar.
(Friedman 1990: 1167)

Silver agitation due to “Crime of 1873”
As we said before, the 1873 coinage law actually reduced the domestic money supply,
did harm to mining interests, hurt farmers and anyone else who carried heavy debt loads.
The resulting outcry raised serious questions about how long the new policy would last.
Moreover, in the same year when the act was passed, the Long Depression, labeled the
Great Depression until the Great Depression of the 1930s, started. The U.S. government
finally caved to the pressure from the western mining states and “cheap-money”
advocacy, and agreed to the Bland-Allison Act of 1878, which forced the Treasury to

33
purchase a certain amount of silver at a high price, and put it into circulation as silver
dollars. (Brennan 1969: 2)
The 1878 Bland-Allison Act was intended to subsidize the silver industry in the
Mountain States and inflate prices, and we will discern such pattern in 1934 Silver
Purchase Act again – when silverites could not restore status of silver as currency, they
usually sought a concessionary act, which provided subsidy to silver industry through
silver purchase program with an intention of inflating prices. In this aspect, the 1878
Bland-Allison Act was precedent of 1934 Silver Purchase Act.
The Bland-Allison Act did not end the silver issue; instead silver had been one of the
most volatile issues in 1880s. The silver issue cut across party lines, with western
Republicans and southern Democrats joining together in the call for the free coinage of
silver, and both parties' representatives in the northeast holding firm for the gold standard.
The result was retention of the status quo, and a postponement of the resolution of the
free silver issue. In 1890, the retention was changed. The Sherman Silver Purchase Act
replaced the Bland-Allison Act in response to the growing complaints of farmers and
mining interests. (Brennan 1969: 2; Wikipedia: Grover Cleveland)
In addition to silver purchase that had been required by the Bland-Allison Act, the US
government was now required to purchase an additional 4.5 million ounces of silver
every month. The law required the Treasury to buy the silver with a special issue of
Treasury Notes that could be redeemed for either silver or gold. That plan backfired, as

34
people (mostly investors) turned in the new coin notes for gold dollars, thus depleting the
government's gold reserves, a phenomenon we are so familiar with when silver and gold
could be exchanged with no limit under unequal mint and market ratio.
Meanwhile, the situation was worsened by the Panic in the stock market. The effects at
last drove more moderates in the Congress to support repealing the free coinage
provisions of the Sherman Act. With the passage of the repeal, the Treasury's gold
reserves were restored to safe levels. (Timberlake 1993: 179) In fact, if free exchange
between silver and gold was permitted, depletion of gold was inevitable. And that was
why free coinage provision almost definitely did harm to so-called financial health,
which often meant to keep a high gold reserve in the gold standard era. That was also
why proponents of the gold standard, usually people in eastern states, deemed silver
dishonest money since free coinage of silver and gold with unequal market and mint ratio
inevitably led to depletion of one metal reserve.
Here we need to point out another pattern: repeal or passage of silver bills was often
related to economic crisis or panic. And we will see this pattern again and again,
including the last 2 Silver Acts in the 20
th
century: the 1918 Pittman Silver Purchase Act
and 1934 Silver Purchase Act.
The 1893 depression not just caused repeal of the Sherman Silver Purchase Act; it also
became a major issue in the nationwide debates over Bimetallism. Influence of silver
issue was so ever-reaching that we could see it in many places. For example, “The

35
Wonderful Wizard of Oz,” a popular children’s fairy tale in the world, was actually a
sophisticated commentary on the political and economic debates on the silver agitation
generated by the so-called crime of 1873. The land of Oz, was the East (of the United
States), in which the gold standard reigned supreme and in which an ounce (Oz) of gold
had almost mystical significance. The Wicked Witch of the East was Grover Cleveland,
the President, who led the repeal of the Sherman Silver Purchase Act. (Friedman 1990:
1167-1168)

William Jennings Bryan and 1896 campaign
In 1896, the agitation known as “Free Silver” came to its climax when William
Jennings Bryan, "the Great Commoner," ran for the 1896 presidential election. Bryan,
completely identified himself with the ordinary Western American, had strong faith in the
goodness and rightness of the common people. (Brooks 1913: 30) He stumped the
country advocating “free silver,” “You shall not crucify mankind upon a cross of gold!”
which built him a grass roots reputation as a powerful champion of that cause. In June,
1896, scarcely any of his countrymen outside his native state had ever heard of him, in
November, 1896, 48% of them voted for his election to the Presidency. (Brooks 1913: 29;
Everest 1950: 4)
This election campaign was significant because it brought out the arguments on both
sides of the silver issue in all their best plumage. Silver never again had a spokesman as

36
able as Mr. Bryan. The 1896 “Free Silver” campaign led by William Bryan was the last
distinct combat of restoring silver’s status as currency in the United States. (Crider 1938:
283) Bryan’s campaign effectively combined silver, inflation, and agriculture interests
though their pursuits were different. The silver interests waged a perpetual campaign for
re-monetization; meanwhile the inflationists and farmers were most vocal when credit
and money were scarce while their debts continued. (Everest 1950: 4)
More than 30 years later, when silver senators “forced” FDR’s cabinet to enact a silver
act in 1934, we could still feel positive and negative emotions about silver connected
with Bryan’s campaign or Bryan’s dream. Senator Ashurst of Arizona told Morgenthau,
“I was brought up from my mother’s knee on silver and I can’t discuss that any more with
you than you can discuss your religion with me.” Meanwhile, Senator Pittman admitted:
“A great majority of the people of our country were imbued with the idea, by reason of
the debates in the ‘Bryan Age,’ that silver was a dishonest money.” (Everest 1950: 39, 45)

Last silver legislative attempts before 1934 Silver Purchase Act
The defeat of Bryan in 1896, the passage of the Gold Standard Act in 1900, and the
gradual return of prosperity shattered the silver legislative attempts. Between 1900 and
1916, it was futile for western silverites to call for a return to a 16 to 1 mint ratio when
the average market ratio was about 36 to 1. (Israel 1961: 359) Yet “like old soldiers, old

37
causes never die; they only fade away.” (Friedman 1992: 63) The silver issue repeatedly
resurfaced still.
During the World War I, Great Britain purchased large amounts of war materials from
India, paying for them with paper notes redeemable in silver. An increased demand for
redemption in 1917, stimulated by increased purchases and by German propaganda
challenging Britain’s ability to cover the notes, practically exhausted England’s supply of
silver reserves. By 1918, Britain had to use gold to redeem the paper notes. Fearing revolt
if it defaulted, Britain immediately turned for aid to the United States. The Senate’s
‘silver expert,’ Pittman, seized this opportunity and achieved passage of the Pittman Act
of 1918. This bill, designed as an emergency measure, authorized the American
government to melt and sell up to 350,000,000 ounces of silver at $1 an ounce. To replace
this loss, the act required the Treasury to purchase domestically-mined silver at $1 per
ounce. This piece of legislation greatly benefited domestic miners, especially when the
world price fell to 60 cents in 1920; and not until July 1923 did the Treasury replace all
the silver bought by Great Britain. (Sewall 1975: 354)
It seemed the 1918 Pittman Act was last chance of silver purchase, let alone restoring
silver’s status as currency. In 1924, the House refused twice to introduce a new bill to
extend the Pittman Act. (Israel 1961: 365) However, this act had much greater
significance than was generally recognized. By paying silver producers a price above the
market, Uncle Sam granted a bonus of some US $58,000,000. As the opening gun in the

38
20
th
century’s silver campaign, it encouraged silver adherents in the belief that the U.S.
government could and would help reverse the world trend in silver price, and that the
likelihood of such action would go up if the policy were linked to corollary measures for
aiding another nation, incidentally promoting American commercial or diplomatic
relations. (Everest 1950: 6)

39
Chapter 3: Passage of 1934 Silver Purchase Act

Above we reviewed the silver issue in American monetary history, and we have
discerned that silver issue evolved from a pure monetary topic to an issue involving so
many historic, political, social factors, especially interest of western silver-producing
states and inflationist in agrarian states. However, without the Great Depression, the
Senate Silver Bloc, whose constituency was located in the western silver-producing states,
could not deploy their “strategy” of promoting silver industry.

The Great Depression and tumult it caused
Just now we have inspected the silver standard, an ever-lasting topic in 19th century
United States. But since Bryan’s defeat in 1896, silver issue was not so important in
American political life. Even the 1918 Pittman Act only asked for a subsidy to the mining
industry, not re-monetization of silver itself. Then, the Great Depression changed, if not
reversed, the situation.
My thesis does not intend to give out the reason of the Great Depression; it was a task
beyond this thesis’ capability. Yet since monetary policy was focus of this thesis, a short
discussion of this economic crisis from the monetary perspective might be instructive.

40
As we mentioned above, since 1900, the United States joined other western nations in
the adoption of the gold standard. The theory of the international gold standard claimed
that, if prices rose unduly in one country, that country’s balance of trade would become
unfavorable and the country would be exposed to a drain of gold with the consequence of
a pressure on its price level sufficient to restore the old price equilibrium. On the other
hand, a country receiving gold imports on an unduly large scale would experience a rise
of prices tending to counteract the import of gold. Thus the system would promote
general stabilization, including both a suitable adjustment of the price-levels of the
different countries to each other and a rational distribution of the world’s monetary stock
of gold. This valuable result would be attained by a mechanism working automatically
and in no need of being “managed.” (Cassel 1936: 2)
However, in reality the system never functioned in such a simple way. For the sake of
security central banks had to keep large gold reserves and hence in a position both to
export and import gold without letting these gold movements necessarily influence the
country’s volume of means of payment or its internal price level. Therefore, the gold
supply of a country was greatly influenced by the policy of the central bank and its
regulation of the market, and other factors such as the movements of capital. In other
words, value of gold is subject to manipulation, including speculation. (ibid.: 3-4)
Another vulnerability of the gold standard, or any metal standard such as silver
standard, was the impossibility of keeping a stable value of gold, which was defined in

41
our thesis to be the purchasing-power of gold in relation to commodities. To guarantee a
stable purchasing power of gold in relation to commodities, supply of gold had to be
consistent with growth of commodities, i.e. economic development. However, it was hard
to attain such consistence. (Cassel 1936: 6-10)
To make things worse, gold was easy to put into hoarding, which deteriorated shortage
of gold supply. As a matter of fact, all metal currencies, including copper and silver, had
this characteristic. This of course provided convenience to people, and was one function
of currency. However, when people lost confidence in the economy, they usually chose to
hoard their metal currency as a safeguard, which aggravated the shortage of the metal
currency, deteriorating economy that was already in a pitiful condition. For instance,
though late Ming absorbed a majority of world’s silver production at that time, hoarding
of silver still caused fiscal crisis. (Cassel 1936: 11)
Further, people’s rush for gold in a time of economic difficulties always had a tendency
to strengthen trade protectionism. As we know, deficit of trade payments needs to be
equalized by capital inflow, as in the case between the United States and China today. But
gold imports offered an opportunity to escape from the necessity of equalizing a
favorable balance of payments by foreign investments, and this led to mutual trade
protectionism and resulted in destructive consequences in international economy.
Description about the repercussion of the Great Depression to world economy was
numerous, and I did not intend to reiterate here. In short, unemployment soared,

42
commodity prices declined, stocks of agricultural products and other raw materials
accumulated, industrial production was curtailed, and international trade was reduced to
incredibly low level. (Cassel 1936: 103-104) In the United States, the deflation led to a
continuum of forced down of price level, which eventually caused an adjustment of even
debts – creditors were admonished to cut down their claims in proportion to the reduction
of the debtors’ paying capacity. Thus failure became more and more common and
numerous banks had to close. Other banks endeavored to secure an extraordinary liquidity,
but curtailment of credits and selling off of securities could only result in incessant
deflation and steadily diminishing liquidity for the economy as a whole – a very similar
scene in today’s subprime financial crisis. (ibid.: 112-113)

President Franklin Roosevelt’s early move in saving economy
On March 4, 1933, Franklin D. Roosevelt inaugurated as the 32nd President of the
United States. In Roosevelt’s inaugural address, he noted “Our international trade
relations, though vastly important, are in point of time and necessity secondary to the
establishment of a sound national economy. I favor as a practical policy the putting of
first things first. I shall spare no effort to restore world trade by international economic
readjustment, but the emergency at home cannot wait on that accomplishment.” About
financial problems, Roosevelt claimed “And finally, in our progress towards a resumption
of work, we require two safeguards against a return of the evils of the old order. There

43
must be a strict supervision of all banking and credits and investments. There must be an
end to speculation with other people's money. And there must be provision for an
adequate but sound currency.” (Morrison 1993: 310; Wikipedia: Franklin Roosevelt
Inauguration address)
Obviously, President Roosevelt declared his domestic-issues first policy. In addition,
he seemed to intend to act on banking crisis, speculation, and “sound currency” though he
did not clearly define what constituted a “sound currency.”
Immediately after his inauguration, Roosevelt put his declaration into action. The new
president called Congress into special session to cope with the banking crisis then
threatening the nation’s financial system. Within forty-eight hours after his inauguration,
the President proclaimed a national bank holiday since March 6. On March 9, the
Congress passed an Act endowing the President extraordinary powers with regard to the
regulation of the currency of the country. On March 10, the President issued an order that
contained embargo on gold exports, except when sanctioned by federal license. These
moves resolved the emergency if not the underlying problems. In April, President
Roosevelt severed the link between the dollar and gold, and declared nationalization of
gold. In other words, the United States in practice gave up the gold standard and adopted
a fiduciary currency. (Brennan 1969: 63; Everest 1950: 21; Cassel 1936: 116-120)
Yet when the President left the gold standard, he had no monetary expert sympathetic
to this idea, or acquainted with currency not anchored to gold. As a result, Professor

44
Warren of Agricultural Economics at Cornell, and Professor Rogers of Political Economy
at Yale, were brought to the White House for the first of many conferences in June, 1933,
and were put to work immediately on plans for a managed currency. Of the two men,
Professor Warren was more influential. In addition, he had known Roosevelt and
Morgenthau very well when Roosevelt was still governor of New York. Warren’s theory
embraced the commodity dollar. He believed that gold, on which the currency is based, is
not an immutable symbol of value, but itself a commodity, subject to the laws of supply
and demand. The Great Depression, according to Warren, was a result of a scarcity of
gold. Here we ascribed the Great Depression to vulnerability of the gold standard again,
and it seemed quite simple. But in 1930s, when gold was still considered to be
Republican orthodoxy, and deemed to be “honest safeguard” of wealth, it was not so
distinct. (Everest 1950: 22-23)
Applying his theory to the immediate American problem, Warren proposed an artificial
elevation of the price of gold through government purchases of the metal at increasing
dollar prices. The result would be a devalued dollar that would force commodity prices
upward as the gold value of the dollar fell. Devaluation of the dollar would thus
painlessly be attained, and the depression price level be raised. Further, the theory
suggested that a cheaper American dollar would stimulate American exports at the same
time it would erect an effective barrier to imports from the rest of the world. Obviously,
Warren’s proposal coincided with the President’s domestic-issues first policy. Late in

45
1933, the President embarked on the policy of large purchases of gold at advancing prices.
(ibid.: 23)
To better understand the financial efforts of Roosevelt, we need to describe one of the
greatest statesmen besides his financial policy and its theoretical foundation here.
Probably the ablest politician since Lincoln, Franklin Roosevelt thoroughly understood
the political necessity of retreating on occasion in order to go forward. With a perfect
sense of timing, he knew the point at which compromise must begin, and he usually was
able to advance one part of his program at the expense of concessions in some other
direction. In embarking on his tremendous social and economic program, Roosevelt
frankly called himself an experimenter and his program an experiment. (ibid.: 18-19)
To increase employment, raise prices and lighten the debt burden, the President began
a series of experiments; and currency was one key device for him to achieve these goals.
After the first moves dealing with the banking panic, the President suspended his decision
until he could see the results of the banking acts though his election had unleashed a
surge of inflationary expectations. (Everest 1950: 19, 22; Brennan 1969: 59)

Inflationary sentiment and early legislative attempts under such sentiment
Just now we talked about the Great Depression and President Roosevelt’s efforts in
saving economy. We seemed to forget our old friend, the silver issue; but actually silver
senators were advancing silver interests all the time. The mining industry experienced

46
economic difficulties long before the onset of the Great Depression. As mentioned above,
silver was largely a by-product of mining; with a widespread lowering of the fineness of
silver coins and large sales of demonetized silver by many countries, supplies of silver
increasingly outran the demand, which brought declining prices. (Brennan 1969: 5-12)
Besides oversupply, another problem of silver in the world market was the rapidly
changing price, which stimulated the activity of speculation, which caused even further
fluctuations in price. The commercial relations of silver-using countries with the rest of
the world were much more disturbed by fluctuations than by mere low prices of the metal.
(Everest 1950: 8) To block speculation in silver, the Treasury Department carried out a lot
of efforts to put “an end to speculation,” which was listed in President Roosevelt’s
inauguration address as a main task.
The Great Depression hit the silver industry more heavily. And western silver
producing states tried to seek remedies in Washington for their diminishing income and
mounting unemployment. However, these initial moves seemed to be unproductive;
instead, the reviving silver movement invited criticism from national publications.
(Brennan 1969: 10-17; Everest 1950: 8-9) Yet as the silver agitation continued, and as the
election of 1932 approached, the Hoover Administration came gradually to feel the
political advisability of acceding to the silver demands. In July, 1932, the British
government invited the United States to join in preparations for a monetary and economic
conference. The Hoover Administration accepted this invitation, but specified that the

47
agenda must include a consideration of the American silver proposals. (Everest 1950:
12-14)
Hoover Administration’s friendly gesture to silver was consistent with the inflationary
sentiment, which was one of the first popular reactions to this economic crisis as to other
depressions. In general, silver demands could be categorized into 4 basic aims: to seek
international agreement on silver, to raise the world price of silver, to guarantee a market
for American domestic silver, and to expand the currency case of the country. Obviously,
the last aim was aligned with other inflationary sentiment. At the same time, silver
proposals began to appear in both houses of Congress early in 1930 though they first
attracted little support. By 1932 even outright demands for bimetallism were heard in
Congress. (ibid.: 12-16)
The Senate Silver Bloc was politically significant since there were at least 7western
states, whose chief income was from mining. Moreover, the leaders of the Silver Bloc,
Pittman of Nevada, Wheeler of Montana, and Borah of Idaho, had served in the Senate
for a long time, and were politically proficient. Savvy silver legislators understood that,
to promote silver interests, they should present their campaign not as merely beneficial to
the mining industry. In a manner reminiscent of bygone times, silver group renewed its
collaboration with staple commodity growers. Both tobacco and cotton men were
disposed toward cooperation because it was believed that the low exchange rate of silver
had reduced the ability of China, an important foreign market, to import their

48
commodities. In addition, silver proponents tried to prove that an advance in the price of
silver was always followed by an advance in the price of other commodities. (Everest
1950: 41; Brennan 1969: 3-4, 25, 28)
The new Congress after 1932 election seethed with plans and proposals to cure the
depression. Roosevelt Administration clearly knew the inflation commanded a majority
in the new House. As to the Senate, it almost passed a bimetallic amendment proposed by
Wheeler on April 17 with 43 against and 33 for this measure even if White House voiced
opposition. Without doubt there was an inflationary majority in the Senate too. (Brennan
1969: 64; Everest 1950: 24-25)
The balloting on bimetallism on April 17 had an unexpected aftermath that alarmed the
President. Directly after the vote on this proposal, Senator Elmer Thomas, the link
between the Farm Bloc and the Silver Bloc, offered an amendment to the Agricultural
Adjustment Act, which combined several well-known ideas into one politically powerful
compendium. The Thomas amendment caused a sensation. Impressive support emerged
within hours. The strength of the amendment’s supporters prompted the Administration to
reassess the situation. With the farm belt on the warpath, inflationists out to solve the
farm problem in their own way, and silverites eager to support any legislation that would
advance their interests, it became obvious that the President could not get his program
through Congress without an inflationary rider. On April 18, the President openly
embraced the principle of inflation, accepting the Thomas amendment. As a return for

49
Roosevelt’s support, the bill was re-written to give him the permissive, rather than
mandatory, inflationary powers. (Brennan 1969: 64-67, 97-98; Everest 1950: 25-26)
The Thomas amendment gave the President a wide, and fortunately, discretionary
control over money. He could issue paper money without any metal backing up to 3
billion dollars to purchase government securities; in addition, the President might set the
weight of the gold and silver dollars at a fixed ratio and order unlimited coinage of both
metals at that ratio. Obviously, the bimetallism provision of Thomas amendment went too
far away. Since defeat of Bryan, not a single law brought the United States to a double
monetary standard so close. Yet Roosevelt refused to use this power, which irritated the
extremists and they later paid close attention to execution in later inflation bills such as
the Silver Purchase Act. As to its influence on the President, Roosevelt was alarmed to
the tremendous surge of inflationary sentiment, which might disturb his saving efforts.
(Everest 1950: 25-26)
Just now we have mentioned, President Hoover agreed to attend the London Economic
Conference initiated by British government. Indeed, Roosevelt, in his presidential
campaign, also promised that he would initiate an international conference on silver
immediately after being inaugurated. Great Britain called on this conference to restore an
international monetary system after the break-down of her gold standard. As to the gold
countries such as France, they demanded more, insisting upon an immediate return of
other countries to the gold standard with at least a provisional fixation of gold parities.

50
(Brennan 1960: 58; Cassel 1936: 135, 140) Obviously, with Roosevelt’s domestic-issues
first policy and practical trade protectionism through further currency devaluation, the
London Economic Conference was doomed to no achievement.
Contrary to people’s expectation, the subject of silver, which was deemed to yield the
least results, harvested the only agreement of this conference under the leadership of
Senator Pittman. On July 22, 1933, Pittman secured a “silver Agreement,” which
recommended cooperation between silver-using and silver-producing countries to
stabilize world markets. According to this agreement, the silver-holding nations agreed on
certain sales quotas. On one hand, Indian government promised to restrict its current sales
of demonetized silver to an average of 35 million ounces annually during a period of 4
years commencing January 1, 1934, and China and Spain made concessions of a similar
nature. On the other hand, the silver-producing countries agreed to consumer certain
quotas each year for 4 years. The governments of the 5 leading silver producing countries,
the United States, Mexico, Canada, Peru, and Australia, agreed to absorb a total amount
of 35 million ounces per year. As to quotas among the 5 silver producing countries, the
following table listed the allotment.

51
Nation Ounces
Percent of 5-
nation total
Percent of obligation to
its own 1932 production
US 24,421,410 69.78% 98.5%
Mexico 7,159,108 20.45% 13.3%
Canada 1,671,802 4.78% 10.1%
Peru 1,095,325 3.13% 17.4%
Australia 652,355 1.86% 10.0%
Total 35,000,000 100.00%
Allotment

Table 1: Allotment of silver quotas among 5 silver-producing nations

Obviously, Pittman almost singlehanded committed the United States to the purchase
of the current output of American mines, an objective that the silver interests had never
succeeded in reaching through Congress – a pattern we have seen in 1918 Pittman Act
and will in 1934 Silver Purchase Act. To silver-using nations, all the “concessions” were
merely promises not to do things that were not likely in the foreseeable future. To
silver-producing countries except the United States, it was a favorable agreement since
the United States assumed almost 70% of the burden. Only Chinese interest might be
endangered as speculation ignited by this agreement was harmful to her currency.
Chinese Minister of Finance, T.V . Soong expressed support to Pittman’s agreement but
with a reservation that China hoped this agreement would eliminate the price fluctuation
of silver since the withholding of silver from world market by the 5 producing nations
would stabilize the market. Yet to validate the Silver Agreement, each of the 8
governments needed to ratify it. And all the other nations waited to see what action

52
Washington would take. (Cassel 1936: 170; Everest 1950: 28-30, 104-105; Counselor
Committee of People’s Bank of China 1991: 111-118)
In October 1933, the President began his second phase of experiment after dealing with
the banking crisis, setting up SEC, and separating investment banking from commercial
banking. He started large-scale purchases of gold in an effort to raise commodity prices.
In addition, the President issued an order to Morgenthau, who was in charge of the Farm
Credit Administration at that time, to start the purchase of wheat for the Emergency
Relief program, with the primary aim of counteracting fall in prices after July 1933. Yet
the President’s attempt to split the silverites and the inflationists in Congress seemed to
fail to break up the silver-inflationist unity. (Everest 1950: 30, 32)
On the other side, the London Silver Agreement provoked both negative and positive
reactions from western states. Some were very pleased, but many reacted otherwise.
Senator Wheeler was one of them; he informed newspaper reporters that the program
advocated by Pittman would be of little benefit because Pittman “is still treating silver as
a commodity and not even as a favored commodity.”Again Wheeler proposed
bimetallism in the Senate. And with the full support of the inflationist forces he had
reason, by December, to be certain of his proposal. Therefore, for the second time within
nine months, President Roosevelt realized the need for compromise, and he used the
London Silver Agreement as a vehicle. Consequently, the United States became the first
nation officially to accept the Silver Agreement. On December 21, 1933, the President

53
publicized a proclamation ordering the Treasury to buy newly mined domestic silver at
64.5 cents per ounce for 4 years, and issued corresponding silver certificates. The
64.5-cent price was about double the market price prevailing in New York before the
London Economic Conference and meant a very substantial premium to the American
producers. Actually, Pittman tried to seek a higher subsidy with a price of $1.29, but the
President refused it. (Everest 1950: 30-31; Cassel 1936: 170-171; Brennan 1969: 82)
Meanwhile, Roosevelt’s efforts in reversing decline of commodity prices seemed to
work after November. In addition, in the foreign trade field, the commodity-dollar
experiment won an advantageous position for the US dollar in relation to foreign
currencies. The cheaper American money stimulated exports; at the same time, it
insulated the American market from foreign dumping. Therefore, at the beginning of
1934, the President prepared to abandon his extreme economic nationalism by making
ready to talk international stabilization on more even terms with other nations. He also
asked Congress to set limits of 40% to 50%devaluation of the gold content of the dollar,
and Congress gave him the authority in the Gold Reserve Act. The President obviously
was satisfied with the outcome of monetary experiment, and seemed to be interested in
proceeding the experiment with a “wait and see” attitude. In January 1934, he stated in
his annual message that he was “withholding any recommendation to the Congress
looking to further extension of the monetary use of silver because I believe that we

54
should gain more knowledge of the results of the London agreement and of our other
monetary measures.” (Everest 1950: 36-37)

Generation of the 1934 Silver Purchase Act
However, in 1934, the silver agitation reached climax. Though it never reached the
proportions of the popular agitation as in Bryan’s campaign, the crusade was nonetheless
carried on by pamphlet and press, radio and club. Senator Thomas, who proposed the
Thomas Amendment, worked closely with the radio priest, Charles E. Coughlin to
support the President’s monetary experiments and to urge him to even bolder move.
Father Coughlin, having built up a large following in his radio sermons on social justice
during 1933, was one of the leading forces in building up public support for silver. His
appeal was chiefly emotional, with tremendous claims for the benefits of restored silver.
For example, in one of his 34 radio lectures during the winter of 1933-1934, he
summoned people to end the “flat tire currency doled out to us by the Federal Reserve
bankers.” (Everest 1950: 36-38; Brennan 1969: 97)
Under such atmosphere, silver senators did not stop putting forward silver interests for
a moment. Within 12 days from the date of the President’s annual message, Senator
Wheeler proposed for a mandatory purchase of 50 million ounces of silver monthly until
a billion ounces was acquired. Even after the President’s vehement opposition, the
amendment was defeated by a vote of only 45 to 43. In evidence, the Congress was

55
pushing toward a complete shutdown with Roosevelt. The struggle between the President
and the legislative houses over the treatment of silver broke into the open following
defeat of Wheeler’s bill. As the struggle progressed, it assumed increasingly the
characteristics of a political tussle, and was less and less based on the economic program
of the original silver proposals. The renewed interest in silver was due not so much to
concern for the silver producers as to a revitalized alliance of forces. When the interest in
the metal appeared to be diminishing, the connections among silver, farm relief, and
inflation were strengthened to such an extent that in the course of time the three had
become inseparable. (Everest 1950: 37-39; Brennan 1969: 102-114)
Morgenthau, who had succeeded the ailing Woodin on 1933 November 17 as the
Treasurer, led the offensive for his chief now. He sent Professor Rogers on a fact-finding
trip to the Orient to find out whether the increased price of silver would mean greater
exports from the United States to China – as the silver proponents claimed. The
announcement of the trip was accused of stalling for time, and irritated silver senators
merely became more determined than before. Then the Administration tried to use a
“trick” to check legislative move. On March 15, Morgenthau, when announcing a policy
of “wait and see,” hinted that a Treasury investigation of silver speculation had
implicated some silver advocates in the activity. This statement resulted in uproar in
Congress, and Morgenthau had to exonerate all legislators from suspicion, but Congress
demanded all the facts about this investigation, developing a strong antipathy to the

56
investigation and to the Treasury for sponsoring it. It seemed that the Administration’s
chief attempt to use the investigation to block silver legislative move backfired. Almost
every active silver senator sponsored a bill. And the most popular one was Dies bill,
which appealed to the 3 groups of silver, farm relief, and inflationist, as the Thomas
Amendment did. After Dies bill passed the House by a large majority, the President, even
if he hoped to avoid making enemies for his domestic program, had to repeat his
repudiation of any mandatory legislation On April 21. (Everest 1950: 39-42; Brennan
1969: 119-124)
A dramatic scene appeared on April 23, when Morgenthau publicized the silver
speculation list. The list did not reveal names of Congressmen. But Miss Collins,
secretary of Father Coughlin’s Radio League, was caught in a half million ounces of
silver speculation using funds of the Radio League.
Before moving on about the Silver Purchase Act, we needed to emphasize the silver
speculation investigation. It was of course a significant move in blocking silver
legislation, yet Roosevelt had expressed his concern on speculation in his inauguration
address. Therefore, speculation investigation was part of the President’s efforts in keeping
a healthy financial system; in later Silver Purchase Act, the Treasury was entitled to
regulate silver trading and imposed a 50% tax on the profits from trading to block
speculation. The revelation of radio priest in speculation definitely shocked silver

57
senators, and subsequent operation of checking silver speculation sometimes constituted
a good reason for Morgenthau to resist pressure from silver senators. (Everest 1950: 42)
The delaying tactics Roosevelt used in publication of the lists for a few days proved a
disappointment since pressure from Congress resumed almost immediately. While
Congress election was approaching, the President felt a veto would be embarrassing for
Congressmen and hurt his efforts on controversial labor and housing legislation.
Moreover, the President felt a compromise would filibuster radical silver senators’ move
in re-monetization, and maybe some further inflation program was needed to pull the
nation out of depression more quickly.
At the same time, silver senators were divided. With Thomas and Wheeler pursuing
re-monetization of silver, moderate silverites such as Pittman used Roosevelt’s readiness
to bargain to realize a more practical bill since in February some influential organization
such as the Economists’ National Committee had stated that no additional silver should
be purchased at any price. “It will not promote sound recovery, but will add to the
liabilities of government and reduce confidence in the nation’s currency.” (Everest 1950:
41; Brennan 1969: 122-124)
On May 5, the President agreed to study the silver proposals, and on May 8 the
President and the silver senators agreed on the general terms. Based on Pittman’s draft,
the Treasury drew up the Administration’s version of these agreements but excluded any
mandatory feature, which led to Borah’s protest and deadlock. Finally another

58
compromise was reached; the Act’s features were mandatory, but the “execution of the
policy should be permissive because Congress cannot hope to foresee all that may happen
in the world until next January.” Therefore, on May 22 the Silver Purchase act was
introduced with an object of either the market price reached US$1.29+ an ounce, or until
the monetary value of the silver stock held by the Treasury reached one-third of the
monetary value of the gold stock; and the rates, times, and conditions of purchase were
kept in the discretion of the Treasury. On May 31 the House voted its approval by 263 to
77; on June 11 the Senate accepted it by a vote of 54 to 25; on June 19 the President
affixed his signature. (Everest 1950: 42-46; Brennan 1969: 119-132)
Though radical silver senators such as Thomas assailed it for not going far enough, the
Act appeared to be a major victory for the Administration especially considering its
preponderance of permissive features, particularly on the purchase of silver. However, the
senators watched carefully to see that the Roosevelt Administration enforced the newly
adopted silver program. Thus, not only Roosevelt verbally committed himself to
execution of the Act, but also Morgenthau executed this bill enthusiastically. However,
one fact must be pointed out: though new silver certificate, a kind of currency, was issued
with backing of newly purchased silver, the total monetary stocks of the United States did
not soar in proportion since Morgenthau retired some gold certificates, Federal Reserve
banknotes and national banknotes. In other words, purchase of silver only generated a
mild inflation. Besides, the silver purchase program had hurt China and other nations

59
deeply. From this standpoint, the Silver Purchase Act was a pure political deal. Moreover,
a study conducted by the Treasury’s Division of Monetary Research for the period from
1924 to 1940 indicated that the price of silver was only a factor of third rank in
encouraging silver production. As to the commodity-price pulling effect, Morgenthau
discredited it with data of increase of commodity indexes during a period of falling silver
in 1936. (Everest 1950: 46, 55, 62; Brennan 1969:132)
An interesting thing about this political compromise was that some researchers deemed
Pittman as advocator of this silver act. But the fact was that pressure from radical
inflationists such as Thomas forced President Roosevelt to make this legislative move
while Pittman was just the middleman between Roosevelt and silver senators. The same
thing happened in China, when Chinese issued her currency reform decrees, many
journalists thought the new legal tender, Chinese Yuan, was pegged to pound sterling due
to a fixed rate between Chinese Yuan and pound sterling. Obviously, monetary issues
were always confusing with their economic principle perplexed with group interests and
sentiment.
After announcement of the Silver Purchase Act and the corresponding silver purchase
program, our story will go to China, where the silver purchase created a series of
financial dislocations and at last forced her off the silver standard, which silver senators
lamented. In the United States, this story contained 3 subsections: dismal recital of the
threats and investigations employed to coerce the Treasury into maximum compliance,

60
the terrible effects on foreign countries, and the growing disillusionment over the
program among large numbers of people, among them, was the Secretary of the Treasury
himself as early as December, 1935. When the American story and its Chinese
counterpart converged, the silver issue turned from a financial issue to a diplomatic one.
Morgenthau deemed his execution of the silver purchase program as giving aid and
comfort to legitimate Chinese government (Note: at that time puppet regime of Wang
Jingwei was established.) with which the Roosevelt Administration sympathized in their
fights for survival. (Everest 1950: 49, 51, 67)

61
Chapter 4: East Asian situation in early 1930s

Above we have shown why and how the United States enacted in 1934 a silver
purchase act, a domestic act impacting other nations. As a matter of fact, we often behold
such scene in American political life. Recently President Obama imposed punitive tariffs
on imported Chinese tires and steel under the pressure of the United Steelworkers as a
payback to a union that helped to elect him. (Greenhouse 2009: The New York Times, B1,
September 23, 2009) In early 1930s, America adopted a practical neutrality policy, and
such diplomacy was a significant context of 1935’s currency reform. We used several
important events to sketch early 1930s’ complicated East Asia situation, which was the
important background of our history-telling and analysis. In this chapter we will show
how America interacted with China under such policy, and how China interacted with
other players in East Asia, especially Japan and Great Britain, centering on China’s
currency reform.
In short, Nanjing nationalist government not only had to cope with the economic
harassment due to uproar of silver price, but also was under political and military
pressure from Japan. Nationalist government’s currency reform in 1935 could be viewed
as a move to bolster the power of Nanjing vis-à-vis Japan.

62
Japanese diplomacy and East Asian situation in early 1930s
In late 1920s and early 1930s, China was a country dominated by multiple powers, and
Japan was another key player in East Asia. Such dominance was under the framework of
Washington 9-power Treaty plus Covenant of League of Nations, and Kellogg-Briand
Peace Pact. Under this framework, Japanese dominance of China acquired mainly
through loan during WWI was eliminated; Japan agreed not to seek exclusive dominance
of China, and emphasized economic interest and coordination with other powers,
especially Britain and America in international affairs. In key areas such as loan to
Chinese government, powers agreed to take coordinative or collective move. In addition,
the 1922 Washington Conference also specified tonnage of navy vessels among the five
navy powers, including Japan. In other words, East Asia was in an equilibrium framed by
balance of forces among western powers. (Usui 1990: 93)
At that time, Japan, as a small island country with a large population, needed to seek a
solution to this discrepancy. There were 4 possible ways out for this haunting problem:
emigration, agrarian reform, industrialization combined with expansion of trade, and
birth control. Agrarian reform could offer at best a partial solution since arable land in
Japan was limited; birth control could be in effect only in a distant future. Some mild
politicians thought only the third way, industrialization combined with expansion of trade,
was the only possible solution to Japan. However, as in any other nations, there are

63
always left and right wings in this issue. To pity of East Asian history, “main-stream”
thought in 1930s Japan did not choose the mild option. (ibid.: 103)
Until summer of 1931, American diplomats thought positively of U.S.-Japan relation
despite some unhappiness. In 1924, the United States passed an immigration Act. This
Act barred entry to those ineligible for citizenship — effectively ending the immigration
of all Asians into the United States and undermining the earlier "Gentlemen's Agreement"
with Japan. Heated protests were issued by the Japanese government and a citizen
committed seppuku outside the American embassy in Tokyo. May 26, the effective date
of the legislation, was declared a day of national humiliation in Japan, adding another in a
growing list of grievances against the U.S. This Act was a hit to the possibility of seeking
outlet for new added 1 million Japanese people every year. (Usui 1990: 103-111;
Wikipedia: Immigration Act of 1924)
Despite such confliction, during most time of the 1920s, diplomacy of Japan was under
the way of then Minister of Foreign Affairs, Kijuro Shidehara. During 1920s, when
Shidehara was Japanese Minister of Foreign Affairs, Japan abided by Washington Treaty,
and attempted to seek a peaceful solution to population pressure. However, people
supporting such mild policy did not develop into “main stream” of Japanese society. For
example, head of the first party cabinet, Hara Kei, told a Chinese journalist on 1921
November 4th that Japan had to seek solution to population through international trade

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instead of territory seizure. But he was assassinated at night in the very day when he
made such a comment. (Usui 1990: 93-94)
Accordingly, “Shidehara diplomacy” demonstrated its fragility from the beginning.
Shidehara or even Japanese cabinet could not control Japanese army. When Guo
Song-ling initiated rebellion to warlord Zhang Zuo-lin in 1925, Shidehara could not stop
Japanese army from interference with Chinese internal conflict. (Ji Peng 2006: 59-61)
Similarly, though Shidehara managed to reconcile crisis with radical Chinese nationalists
in early 1927 caused by a series of political events such as that nationalists took back
Wuhan and Jiujiang concessions, he was still criticized in Japan as weak. (Song Kaiyou
2005: 167-168)
With the hit of the Great Depression to Japan, Japanese economy was greatly impacted,
and riots emerged here and there. Japanese society grew to be much more aggressive.
Young army officers thought plutocrats and politicians should be blamed for Japan’s
trouble, and organized plots such as coup d'etat to assassinate politicians holding mild
standpoint. In 1930, Prime Minister Hamaguchi Osachi was assassinated; then in 1932, it
came to Prime Minister Inukai Tsuyoshi; in 1936, it came to some important cabinet
members such as Secretary of the Treasury. Thus, mild politicians were afraid to speak
out their thought, and army seized leadership in government.
Japanese army in Manchu went farther than their government and domestic
counterparts. Several military staffs, ignoring command from headquarter in Tokyo,

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engineered an attack to Chinese army in Shenyang on 1931 September 18. This was the
well known Shenyang Incident, the forerunner of Japan’s all-round invasion to China and
Pacific region in WWII. The Japanese cabinet totally lost control of Japanese army in this
Incident, and had to accept the “accomplished” fact. When Japanese army worsened the
situation by invading regions outside traditional Japanese railroad territory in southern
Manchuria, Shidehara demanded a stop with a threat of his resignation. But the offense
was not discontinued and the whole Manchuria was seized by Japanese army. (Li Jie
2004: 89)
When Manchu Incident broke out, Chinese government put its hope on international
sanction, especially intervention of League of Nations, while the international community
put its hope on Shidehara. (Cohen 1990: 3-8) But with the unexpected smoothness in
Manchuria, the whole Japanese army, government, and society were thrilled at success of
their military gamble, and Shidehara was asked to resign. Outside Japan, Shidehara’s
promises of restricting military activities were broken again and again by Japanese
army’s attack. Shidehara had to resign at last. (Li Jie 2004: 91-92) Shidehara’s diplomacy
was totally rejected and Japan imperialism began its gamble leading into the WWII.
Hoover administration’s Secretary of State, Henry Stimson, tried to stop such outrage
after he found Shidehara could not stop Japanese army. But he could not get support from
President Hoover and in council powers of the League of Nations, especially Britain.
What Stimson could do was to send an official note to China and Japan, asserting that the

66
United States would not recognize international territorial changes that were executed by
force, which was called the Hoover-Stimson Doctrine. It was a statement of pure
principle, made even purer by the disinterest and inability of the United States to back up
those words with real actions. Given the economic, military, and diplomatic constraints
ensuing from the Great Depression, violations of the Hoover-Stimson Doctrine would
bring public rebuke by the United States but nothing else. (Cohen 1990: 6-13)
So it was the situation of East Asia at the beginning of 1930s. Equilibrium established
after WWI was broken. Japan considered its continuous invasion to be justified. “The
world exists for the whole of mankind. Honest, hard-working people are entitled to live in
happiness anywhere on earth. In reality, however, there are people who are idle and yet
enjoy comfortable living on the basis of their past accumulations, whereas some honest,
hard-working people are denied the same right. Can there be anything more unjust? …
Japan’s population has doubled in the last fifty years, and has been seeking an outlet out
of their narrow home islands. But their immigration has been prohibited everywhere. It is
against mankind’s natural principles for the United States to refuse to accept our
emigrants, and the Japanese people have expressed their most serious regrets over the
discrimination. However, the fact remains that there is an inherent conflict between
‘have’ and ‘have-not’ countries in the world. If the unequal distribution of resources and
materials, about which complaints have been mounting, is not corrected, and if ‘have’

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nations refuse to ‘have-not’ nations a share of their existing rights, then only war may
solve the conflict.” (Usui 1990: 110)
To the United States, East Asia was far from an important issue especially considering
the Great Depression. Only three weeks after the Secretary of State of Hoover
Administration delivered his diplomatic notes, Japan attacked Shanghai, extending its
sphere of influence into central China. The United States refused to take action; Stimson
wanted to impose sanctions on Japan, but Hoover was reluctant to engage the United
States in steps he deemed tantamount to war. Moreover, given the domestic pressures
Hoover was facing—including staggering unemployment figures, numerous bank failures,
and a massive drop in consumer spending—it was all but impossible to send ill-prepared
military forces around the world. The President hoped that China's size and culture would
help it absorb the Japanese incursion, and that a dose of moral suasion would help
convince the Tokyo leadership to cease and desist. Neither of these developments came to
pass. (Wikipedia: Hoover-Stimson Doctrine)
Stimson met with President-elect Roosevelt in January 1933, and got the latter’s
assurance that the United States had a moral obligation to denounce Japanese actions.
(Cohen 1990: 11) But as we said before, President Franklin Roosevelt adopted a
domestic-issues first policy at first years of his administration, and did not have extra
resources to realize his promise to Stimson in East Asia.

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Game playing in early 1930s: Cotton-and-wheat Loan and Amau Doctrine
Above we have outlined East Asian situation in early 1930s. In fact, process of 1935’s
currency reform clearly showed how the forces in East Asia interacted with each other
centering on Japanese aggressive move in East Asia.
Japanese invasion of Manchuria activated Chinese people’s resistance. Even if Chiang
Kai-shek adopted an internal conflict first policy, Chinese nationalist government began
to prepare for Japanese possible invasion. Qian Changzhao, secretary of Chiang Kai-shek
and then deputy Secretary of the Education Department, thought Japan would initiate an
all-round invasion to China sooner or later, and China had to prepare for it first. Qian
suggested establishment of “the National Defense Committee” to counter-plan this
invasion, and this advice was accepted by Chiang Kai-shek. On 1932 November 1st, the
National Defense Committee was set up with Chiang Kai-shek as chairman and Qian as
executive secretary. The National Defense Committee mainly focused on important
military projects, including railroad construction for transporting industrial equipments to
western China, the future base of resistance. (The Revolutionary Committee of the
Chinese Kuomintang 2008)
This committee was divided into 7 sub-committees including economic and financial
group, whose members comprised of important private bankers such as Xu Xinliu,
president of Zhejiang Xingye bank, one of the largest private commercial banks. These
private bankers actively initiated a plan of currency reform. When Xu was shot down by

69
Japanese air-fighter in 1938, people found a draft for currency reform in his belongings.
(Li Xuetong 2003; Yao Huiyuan 1997) Obviously, currency reform had been in the
schedule of Nanjing nationalist government as part of a counteraction to Japanese
invasion, even before severe silver crisis caused by American Silver Purchase Act. If we
deem silver crisis as one of extremely urgent causes of China’s adoption of managed
currency, Japanese invasion of Manchuria was a more essential element in precipitating
China’s currency reform. From this perspective, American silver policy was just an
immediate inducement of 1935’s currency reform, but Japanese invasion was a more
important reason of China’s currency reform. Indeed, nationalist officials had realized in
June, 1934, that they could not just rely on Euro-American aide to solve the currency
issue; thus they sought another solution and planned the currency reform. Nanjing
welcomed assistance from western powers, but in case such aid was impossible,
nationalists had to prepare other options. Preparations for the currency reform also went
on beforehand, such as surveying distribution of silver among banks in China by Chinese
Central Bank in October 1935. (Yao Huiyuan 1997; Russell 1992: 141)
Obviously, case of Xu Xinliu indicated that, not just Chinese nationalist government,
but also Chinese financial industry, had begun to consider currency reform as part of the
all-round resistance plan. A similar case, the Cotton and Wheat Loan, also indicated
Chinese move in resisting Japan; this case also indicated how China tried to introduce
other powers as her allies and how Japan detested such attempt.

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In 1933, T.V . Soong, Chinese Minister of Finance, visited Washington when he
attended the London Economic Conference. On 1933 May 29, T.V . Soong signed a
50-million-US$-loan contract with American RFC (Reconstruction Finance Corporation).
According to this contract, RFC would provide a 50-million-US$ credit line to China,
and China would use 40 million US$ to purchase cotton from America and the left 10
million US$ to buy American wheat and flour. Chinese government would sell these
cotton and wheat in China, and the fund got through this sale would be used in
infrastructure construction. This contract was not a pure economic loan; Chinese and
American officials both discerned its political meaning. (Hosoya 1990: 76-77)
To American officials, this contract was a good vehicle to sell surplus farm produce
due to the Great Depression, and such sales could help ease pressure from congressmen
of agrarian states. Morgenthau, then director of the Federal Farm Board, thought highly
of this contract – “even if this loan was never repaid, the sale of the cotton would boost
domestic prices, increasing the value of cotton stocks on hand within the United States by
as much as $100,000,000.” T.V . Soong, the highest-ranking official within Nanjing
nationalist government who was critical of attempts of conciliating with Japan, tried to
strengthen China’s capability of resisting Japan through this loan. (Hosoya 1990: 77;
Cochran 1990: 2)

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Indeed, the Cotton and Wheat Loan involved 3 countries - China, the United States,
and Japan – with different opinions in each nation. This loan was a perfect case in
describing game playing in 1930s’ East Asia.
At first, T.V . Soong planned to make a 10-million-US$ loan with cotton and wheat half
and half. However, Rong Zongjing, a Chinese magnate holding the largest Chinese cotton
and flour producing group, told Soong that Chinese industrial community needed more
cotton as raw material. He told Soong that his cotton factories alone would require per
year 600,000 packs of raw cotton, which was worth 40 million US dollars. This was not
the first time when Rong tried to acquire inexpensive raw material and outwit his
Japanese rivals. Several days after the Shenyang Incident in September 1931, Rong
Zongjing wrote directly to Chiang Kai-shek, and demanded the nationalist government
support the “China made goods first campaign,” which would help Chinese
manufacturers in resisting Japanese enterprises’ competition. In October, when Chiang
expressed oral support but did not take substantial concrete move, Rong began to canvass
other high officials. (Cochran 1990: 118-119)
Under the slogan of “China made goods first,” Rong urged Nanjing government to use
all kinds of economic weapons to counterattack Japan. For instance, higher tariffs on
Japanese imports, higher taxes on Japanese goods, and official support for the
anti-Japanese boycott launched to protest Japanese seizure of Manchuria, and efforts for a
loan of cotton and wheat from the United States. In fact, Rong’s effort in securing raw

72
cotton and wheat from America began from 1931, far before Soong’s visit to Washington
in 1933. In 1931 fall, Rong complained to nationalist officials that his factories faced
severe shortage of raw material supply due to Japanese seizure of Manchuria and the
great flood in Yangtze area. In 1932 June, he planned to purchase 400,000 packs of raw
cotton from America with financial endorsement from Chinese Ministry of Finance,
though at last American congress disapproved this deal. In 1932 October, he succeeded in
securing a 3-year loan from American RFC with his real estate and commercial notes as
collateral, and this loan would be used to buy 100 million packs of raw cotton and 100
million bushels of wheat. He thought these excess farm produce was too redundant for
America during the Great Depression and RFC would give him a good deal, but RFC did
not present a low price as he thought. After these failures, Rong then asked nationalist
officials’ help in his acquisition of raw material. In spring 1933, Rong got Soong’s
promise of seeking a loan of cotton and wheat during his visit to Washington. (Cochran
1990: 119-121)
This time, with a different Administration seeking relief of the Great Depression (Note:
President Franklin Roosevelt was inaugurated in March 1933), RFC suggested Chinese
Minister of Finance a 40-million-US$-cotton-and-10-million-US$-wheat loan, far above
Soong’s original 5-million-US$-cooton-and-5-million-US$-wheat loan. Consultation with
Rong got a pretty positive response, and Rong emphasized the importance of securing
such a large loan in survival of Chinese textile industry and competition with Japanese

73
business rivals. Thus Soong accepted this deal, and made a contract of purchasing
600,000 packs of cotton by 40 million US dollars. (ibid.: 120)
As we said before, this loan was not a pure business loan. Shortly after this loan was
made public, Japanese officials criticized that this loan was used to fund China’s military
resistance to Japan. Moreover, much to T.V . Soong’s surprise, Rong exaggerated the
amount of cotton that he needed. With a harvest of Chinese cotton, cotton price went
down. At last, the cotton purchase of all Chinese factories in 1933 and 1934 was only
600,000 packs, just accounting for 10% of Rong’s original estimation.
Therefore, this loan also made a negative impact on relationship with the United States.
President Roosevelt complained that this loan did not generate the expected stimulus in
boosting price of American commodity, and Chinese officials had to admit that they made
a biased estimation. Soong’s political opponent criticized him for deepening contradiction
with Japan, and Soong was drove out of Chinese cabinet in 1933 October partly due to
this mistake. At last the United States and China agreed to reduce the loan amount to the
original number, 10 million US dollars. This event was not just a strike to Chinese
political faction for firm resistance to Japan; it caused some trouble in later quest of
American support – i.e. the State Department worried about Japanese protest and the
Treasury Department worried about abuse of fund by Chinese government. (Cochran
1990: 117-123)

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When Soong first sought this loan, American State Department warned that such loan
would provoke Japan while Japan was the largest buyer of American cotton. In addition,
Soong carried out a series of diplomatic activities attempting to eliminate Japanese
influence in East Asian during his stay in Washington and London. For instance, he tried
to organize a bank cartel without Japanese attendance in providing credit for Chinese
infrastructure and industrial construction. This was against the 9-power treaty and the
corresponding East Asian frame though this frame had been broken by Japanese invasion.
Thus, Japanese Ministry of Foreign Affairs changed its neutral attitude toward the Cotton
and Wheat Loan. Japan thought this loan was China’s conspiracy of involving other
powers in resisting Japan. With other “tricks” such as Soong’s attempt to organize an
alliance of China, America and Soviet Russia to intercept Japan, Japan reacted strongly.
Japanese government demanded Japanese factories in Shanghai not buy excess American
cotton even if it was a good deal as a warn. They also expressed their dissatisfaction of
the cotton and wheat loan to American State Department, and the latter had to respond
that they had no influence in RFC. (Hosoya 1990: 75-86; Zheng Huixin 2002: 54-57)
On 1934 April 17, spokesperson of Japanese Ministry of Foreign Affairs, Eiji Amau,
claimed, and repeated it in June 1934, that Japan had special interest in China, and
western powers should not interfere with Chinese issues, and China should not introduce
western powers to intervene intercourse with Japan. (Li Gongqin 2004: 99; Russell 1992:
88) This is the so-called Amau Doctrine, or the “Asian Monroe Doctrine.” Later we will

75
see that, Amau Doctrine was an important element in East Asian foreign affairs in early
1930s. American State Department and British Ministry of Foreign Affairs, fully
understanding meaning of Amau Doctrine, tried to avoid direct confrontation with Japan
and constrained move of their colleagues such as the Treasury Department.
The examples above provided vivid description about complexities in 1930s’ East Asia.
In addition, the Cotton and Wheat loan and following Amau Doctrine influenced process
of China’s currency reform greatly. In 1935, when nationalist government declared the
currency reform, a sufficient foreign reserve was essential to success of this reform.
When China sought help from the Treasury department of the United States, the State
Department expressed concern due to Amau Doctrine. Morgenthau, now Secretary of the
Treasury, had to pay attention to the State Department’s warning this time – maybe
because of his experience in the Cotton and Wheat loan. Besides, the United States did
not accept T.V . Soong as the envoy on selling silver and acquiring US dollar loan as
currency reserve fund. Though we cannot absolutely claim the direct sequence between
the Wheat & Cotton Loan and Amau Doctrine, between Amau Doctrine and objection of
the State Department to aid China in the currency reform, obviously there existed some
connection between them. In the next section we will talk about the process of 1935
currency reform, and how America, China, Britain, and Japan interacted during this
process.

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Chapter 5: Process of 1935 currency reform

We have analyzed the factors behind American silver policy and East Asian situation in
early 1930s. These factors were manifest during the process of China’s currency reform.
Great Britain was also a key player in China’s legal tender reform; as we unfolded our
narration, we would find that Great Britain was the first power to give Chinese nationalist
government support in facilitating 1935’s currency reform.
Why Great Britain provided support to Chinese currency reform? The common
explanation was pure political. In Europe, Great Britain was facing threat from
re-militarized German; in Asia, Japan was showing its teeth; since Europe was a more
important region to Great Britain, England wanted to stabilize East Asia, and supporting
Chinese nationalist government was an inevitable step in counter-balance Japan in East
Asia.
Monetary analysis told a different story but demanded a same action. Interwar years
between WWI and WWII were full of tumult, especially in world economy and monetary
standards. As the leading Power at that time, Great Britain had a paramount interest in the
development of the world’s trade, shipping, and finance, which was the chief motive in
Britain’s return to the gold standard in 1925.

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However, in September 1931 Great Britain abandoned the gold standard due to a series
of economic and financial difficulties. England then sought to establish Sterling Group.
The formation of a Sterling Group of paper currencies would secure for Great Britain an
independence of arbitrary and haphazard influences and of endeavors to exploit monetary
resources for political ends. As leader of the Sterling Group, Great Britain would again
acquire the authority and lead to which she is so justly entitled in international affairs.
(Cassel 1936: I, 36, 42-43, 84, 87)
Obviously, setting up a Sterling Bloc and soliciting other nations to peg its currency to
pound sterling was consistent with interest of Great Britain. That was why British
Ministry of Treasury advocated energetically for China’s adoption of a foreign exchange
standard pegged to pound sterling. Based on the same logic, the United States Secretary
of Treasury actively sought link of Chinese legal tender with US dollar while Japan
likewise wanted to build a Japanese Yen Bloc.

Early Efforts of Chinese nationalists in acquiring support from Anglo-America
As I said in chapter 1, Nanjing Government announced the currency reform decree on
night of 1934 November 3 to cope with silver crisis caused by American silver purchase
program. However, the November 3 decree was only a beginning of Nanjing
government’s currency reform. To declare the decree of the currency reform was one
thing, but to guarantee the success of currency reform was another thing. Since Nanjing

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government announced that new issued Chinese Yuan could be redeemable by foreign
currencies such as pound sterling or US dollar with no restriction, the success of 1935
paper money reform was lay on sustainability of a sufficient foreign reserve. Obviously,
exchanging silver acquired through nationalization for US dollar or pound sterling was a
good choice.
A series of diplomatic efforts had been deployed before announcement of the
November 3 decree. At the beginning of 1935 January, T.V . Soong, now president of
Chinese Central Bank, intended to go to the United States and request a fund to handle
the silver crisis. However, an indifferent response “no help” echoed back. At the end of
the same month, Soong requested again for a US dollar loan and neither got positive
answer. Almost simultaneously, on 1935 January 17, British Ministry of Foreign Affairs
notified Cadogan, minister to China, to give a denial to Soong’s loan request and said
“the most direct solution is to negotiation a silver exchange program for US dollars with
the United States.” (Russell 1992: 74; Zhuo Wenyi 1979: 193) Yet these were just
ostensible response of Anglo-American governments; intense debates about Chinese
silver crisis were carrying on in both states. Failure of silver export tax and equalization
charge in deterring smuggling proved Nanjing government’s impotency of blocking drain
of silver; and in December 1934, both Great Britain and the United States realized that
China was facing irretrievable economic crisis. In addition, they learned Nanjing
government was planning to take some dangerous move such as a paper currency

79
arrangement without any metal or foreign reserve backing. Outcome of such risky move
meant a total disruption of Chinese economy, which meant a disaster not just to China,
but also to Anglo-American interests in the Orient. Moreover, Japan could use this
opportunity to dress itself up as the only friend whom China could rely on. Indeed,
London and Washington had received news that Tokyo was promising a foreign loan to
Nanjing, and as a return, China would peg her currency to Japanese Yen. (Russell 1992:
53-61)
In the United States, State Department and Treasury Department were debating over
the silver issue while silver senators were not at a loose end. The State Department,
receiving flooding “angry” reports about Chinese silver crisis, demanded stop of silver
purchase program at least temporarily. Yet the State Department opposed to the unilateral
move of providing a foreign loan to China to avoid provoking Japan and being trapped in
East Asia. The State Department totally understood meaning of Amau Doctrine and did
not want to risk direct confrontation with Japan in East Asia. Meanwhile, the Treasury
Department understood Chinese silver crisis and accumulating hostility among Chinese
business communities. Actually their silver policy had been changed to stabilize, not raise,
price of silver when pressure from silver senators alleviated. Morgenthau and President
Roosevelt thought that since key silver senators such as Pittman and Wheeler had been
easily reelected, these senators would relax pressure on the issue of prices. In addition,
Morgenthau tried to impress silver senators with the adverse effect of silver purchase

80
program on American export to China, which, contrary to their expectation, was
declining. In December 1934, the Treasury Department, as the State Department, also
submitted President Roosevelt memorandums on Chinese silver crisis, which suggested a
remediation action. Of course, this remediation should be congruent with American silver
policy and promote it in the long run. (Russell 1992: 60-66; Brennan 1969: 138)
On the other hand, pressure from the Senate did not alleviate. In a certain sense, it
intensified. Though senators from silver-producing states were satisfied with rising prices
and nationalization of silver, Senator Thomas, the inflationist who was the link between
silver senators and agrarian interests, repudiated Treasury’s stabilizing policy. He urged
Treasury to speed purchases on the world market. On January 16, 1935, Thomas hosted a
National Monetary Conference in Washington to highlight demands for increased money
circulation especially silver money. (Brennan 1969: 138)
Meanwhile, President Roosevelt, not only received from State Department and
Treasury Department reports that suggested immediate action, but also got appeal from
American economists, bankers, and businessmen that American interests were hurt by
American silver purchase program. Kemmerer, economist who helped plan currency
reform plan of Nanjing government in late 1920s, criticized the Silver Bloc gravely and
claimed that American Silver Purchase Act would force China off the silver standard,
which would impair silver interests eventually. Franklin Delano Roosevelt, fully
confident in his knowledge of this Oriental Civilization, which came down from his

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grandfather Delano, told Morgenthau that no immediate action needed to be executed
now. (Russell 1992: 66-67)
In England, a similar debate was going on. In December 1934, the British government
established an inter-department committee on Chinese issue. The first convention on
1934 December 19 concluded that China’s silver standard might collapse at any moment.
Yet if China took an exchange standard pegged to pound sterling, Britain would benefit.
Now the question was where the loan used to guarantee success of this foreign exchange
standard was. Maybe America would buy Chinese silver and provide foreign reserve.
Then the due diligence process carried on. (Russell 1992: 68-69)
It seemed that an impasse was forming. On 1934 December 9, H.H. Kung, Chinese
Minister of Finance, sent telegraph to his American counterpart, asking the United States
not to purchase overseas silver with a price higher than 0.45 US dollars per ounce.
Morgenthau showed his sympathy by persuading Roosevelt to stabilize the world market
at 0.55 US dollar per ounce. On December 18, he notified Nanjing that he would not
purchase silver in excess of this price. But later he told Shi Zhaoji, Chinese minister, that
this interdict might expire in one week since he had to keep his promise to silver senators.
This notification forced Shi Zhaoji to ask Nanjing to send an envoy to negotiate a deal on
currency affairs with Morgenthau, and in Morgenthau’s words, “explain to silver senators
why our silver policy is hurting China.” T.V . Soong was recognized by Shi, Morgenthau,
and Roosevelt as a proper candidate. However, this decision encountered intense

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objection from the State Department, who emphasized Soong’s notable position against
Japan. The State Department stuck to its original position, that was, if Treasury could not
change American silver policy, then it was better to do nothing. (ibid.: 60-70) Then until
January 1935, Roosevelt Administration continued a “wait and see” policy and silver
purchase program went on.
At the same time, British Ministry of Foreign Affairs also worried about the risk of
trapping in Chinese currency reform alone and provoking Japan. Even cooperation with
Japan meant risk since this alliance might signal an unfriendly move to Russia, and drive
Russia into alignment with Germany, and this was what worried England most. In
addition, Washington and London also feared about abuse of loan and corruption in
Nanjing government. Hence, inter-department Chinese committee told Cadogan, British
minister to China, the best solution was for China to negotiate with the United States on
American Silver Purchase program. So until January 1935, Great Britain also adopted a
“wait and see” policy. (Russell 1992: 60-74; Wang Xi 1990: 47-49)
In January and February, both Britain and America got numerous reports about sudden
increase of Japanese diplomatic activities centering on Chinese currency issue; Nanjing
“did not forget to” notify London and Washington of pressure from Tokyo. Cadogan
reported to London that he heard some rumor about a negotiation between China and
Japan for establishment of Japanese Yen Bloc. Further, on 1935 March 2, Japanese
Minster of Foreign Affairs issued a “new guideline of our China policy” and announced

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that if China was ready to lean toward Japan, Japan would provide all possible aid in
finance and economy. H.H. Kung, Chinese Minister of Finance, proposed a new plan,
where new Chinese currency pegged to US dollar and the United States provided a US
dollar loan as a premise. Worry about Japanese success in China forced officials of State
Department and Treasury Department to debate again on the Chinese currency issue. But
the divergence stayed the same. The State Department demanded a collective move with
other powers while Morgenthau thought it was a “pure” monetary issue and the Treasury
Department could adopt any measures proper, including inviting T.V . Soong to the United
States. (Russell 1992: 72-90; Zhou Chunyin 2005: 25)
A change sign arose in England in February. British Minister of Treasury felt uneasy
about his government’s “totally passive” Chinese policy, and thought such policy would
lead to “dangerous outcome” in East Asia. In addition, Great Britain had the biggest share
of foreign investment in China, 36.7% of the total foreign investment. In Shanghai alone,
British interest was 7 times of America’s. Chinese situation was directly related to British
economy and domestic employment. Hence, he thought Great Britain should seize the
opportunity when Japan expressed interest, and initiate a collective move. On February
28, 1935, “the Cabinet Committee on Political and Economic Relations with Japan”
reviewed this issue in a meeting, and decided several steps. First of all, surveying
situation in China “quietly,” then an international conference might be held in London.
England intended to initiate a collective move with China, America, and Japan. Roosevelt

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administration echoed with some reservation that they would follow British leadership,
but Japanese government refused British proposal in April; meanwhile Nanjing hoped
that international aid was from as less states as possible. T.V . Soong also pointed out that
collective move with Japanese participation was impossible since Japan welcomed
financial collapse of China. Nanjing’s formal response came on March 8 with a claim in
principle that expressed willingness to attend international conference. (Russell 1992:
74-91; Zhou Chunyin 2005: 25)
London’s efforts failed. Japan resented cooperation and re-emphasized Amau Doctrine.
Nanjing lost confidence in Euro-American powers, and was considering reform of
Chinese national banks as a precursor of currency reform. Great Britain found itself still
caught in the middle with challenges from both Asia and Europe.
At that time silver senators was dividing in the silver issue. Thomas sought to propose
a re-monetization bill, and this aggressive move got little support from his colleagues.
Senators from western mining states were almost exclusively concerned with the silver
purchase program and the prices paid. In April, Pittman sent a review of the purchasing
policy to the President, and suggested increasing the silver price by reducing the
seigniorage from 50% to 25%. The next day, Roosevelt lowered the seigniorage to 45%,
leading to a price increase from 64.5 to 71 cents per ounce for silver produced in the
United States; the world market echoed with a sharp rise. When Roosevelt signed a new
proclamation reducing the seigniorage further to 40% under request of Pittman, the world

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price soar began to bother silver senators since speculation in the market might trigger a
break, which would immediately bring severe criticism upon the Bloc while the silver
sentiment had settled down. Now except 2 senators, they were satisfied and willing to
compromise. In May, they permitted Morgenthau to sell small amounts of silver, brining
down the world price to below 75 cents per ounce even if the selling was opposite to the
spirit of Silver Purchase Act. This irritated the only two remaining adamant silverites,
McCarran and Thomas, whose “persistent” efforts failed. In August, McCarran’s attempt
to offer his amendment to the Silver Purchase Act encountered a refusal in the House of
Representatives. (Brennan 1969: 139-145)
Despite the lessening pressure from silver senators, price soar in April and May had
exacerbated Chinese silver crisis. At the same time, Japan exerted pressure on North
China. In June, Japan and China signed the so-called Chahar Treaty. In July, another
treaty was signed. Both treaties forced Nanjing nationalist government to retire
“anti-Japan force” from Hebei and Chahar provinces. In addition, Japanese lazzarone,
semi military personnel, engineered a run on Chinese banks. Banks in Tangshan, a city
close to Beijing, were redeemed 793,000 Yuan of silver in just 2 weeks from 1935 May 3
to May 16. Such redemption weakened people’s confidence in banknotes (Notice:
Nanjing government had acquired control of key Chinese banks at that time.) and
aggravated silver crisis. (Zheng Huixin 1986) In addition, silver smuggling was carried
out publicly. In May 1935, Chinese customs captured several silver smuggling close to

86
the Great Wall, but Japanese army demanded a compensation claiming such law
enforcement violated the Tanggu Truce Agreement and required Chinese customs stop
law enforcement near the Great Wall. In September 1935, Japanese Navy forbad patrol
boats of Chinese customs to cruise in seashore from Qinhuangdao to Tianjin. Chinese
Maritime almost totally lost capability of suppressing smuggling. (Zheng Huixin 2002:
59-60)

Delegation of Sir Leith-Ross
Obviously, a financial collapse might happen at any time and Nanjing was taking every
step to prepare for feasible financial downfall. As we will discuss in the next chapter,
bank reform was executed to strengthen government’s control of financial industry. In
addition, new provision regulated that smuggling would be sentenced to a death penalty.
T.V . Soong, as chairman of Central Bank, also signed a “gentleman’s agreement” with
Euro-American banks, who guaranteed that they would not ship silver out of China. A
reward decree encouraging import of foreign silver was enacted as well. But these
measures seemed not to work. (Counselor Committee of People’s Bank of China 1991:
151-155)
Not just China was in miserable circumstances; Great Britain wanted to take action
immediately. Germany's rearmament and Italy’s invasion into Ethiopia made a balance in
East Asia desirable for Britain. The intention of collective move with other powers

87
clearly failed; some of key British enterprises in China had issued protest to London. On
1935 June 10, Great Britain announced that Sir Frederick Leith-Ross, chief economy
advisor, would go to China to survey Chinese economy and discuss current problems
with China and related states. (Wang Xi 1990: 47-51; Counselor Committee of People’s
Bank of China 1991: 159)
Then London announced they also invited the United States, Japan, France, and Italy to
take the same move, but no response was received. As a matter of fact, British invitation
re-activated debate between American State Department and Treasury Department. The
State Department thought highly of this invitation, and deemed it an opportunity of
bringing peace to East Asia and a chance of Anglo-American collective move. But
Morgenthau considered it a move with no chance of success. Besides confidence in
impossibility that Japan would not permit other powers to intervene in Chinese issue,
Morgenthau had a “correct” belief to refuse British invitation – he believed there was a
currency war in East Asia among England, America, and Japan. He suspected the real
motivation of Great Britain and was determined to advance American interest in this
currency battle. (Russell 1992: 110)
Of course, at that time, Thomas and McCarran were creating some trouble, but as we
mentioned above, the pressure from silver senators was alleviating. Moreover, at the end
of this year, 1935, a major revision would occur to the silver purchase program because
of altered circumstances in the domestic and foreign scene. In the United States, urban

88
discontent diminished and rural agitation faded away with relief of the Great Depression;
in addition, business communities criticized gravely American silver purchase program
due to its disastrous outcome in the Orient and shock on American trade and relationship
with China. (Brennan 1969: 146)
The debate between the State Department and the Treasury Department still did not
produce any action; and Japan neither showed positive response. Only Chinese
government welcomed this initiative move since it might mean a British loan. They tried
to persuade Washington to send a delegation with Leith-Ross, but obviously it did not
succeed. (Counselor Committee of People’s Bank of China 1991: 160-168)
Different from the situation in the United States, in Great Britain, Ministry of Treasury
led Chinese policy. American silver purchase program and Japanese invasion had greatly
stricken British economic interests in China. In addition, desire to persuade China to join
the sterling bloc had a long history – it began in early 1900s when British subject, Robert
Hart, director of Chinese Maritime Customs proposed Chinese silver coin to peg to pound
sterling. Under the repercussion of the Great Depression, such desire was stronger; and in
March 1935, Sir Sassoon, a British tycoon in Shanghai, proposed a “pound sterling plan,”
which indeed pegged Chinese currency to pound sterling. In short, British government
and civilians were interested in advancing economic interests in China. Actually,
Leith-Ross and financial officials had drawn up a plan for this monetary delegation.
British Ministry of Treasury deemed the only choice of China was to give up the silver

89
standard - which was bothering American officials – and choose a foreign exchange
standard. As to the foreign currency, Sir Leith-Ross said, almost any foreign currency was
better than silver, “but pound sterling is the most fit for China.” But British Ministry of
Treasury did not want to impress the world that London forced China to take such
initiative; instead hoping Chinese to take this step themselves. (ibid.: 172-175; Russell
1992: 119)
At the same time, London realized cooperation from Washington and Tokyo was
impossible. Leith-Ross had to cancel intended stay in the United States, and his talks in
Japan did not produce any outcome. Indeed Leith-Ross’ original proposal was daring and
ridiculous. It suggested a loan from Great Britain with tax revenue from Manchukuo, the
puppet state in Manchuria, as collateral. This proposal was met with a flat refusal, from
both China and Japan. (Elliston 1936: 339) On October 22, Leith-Ross finally had to
reject this idea and put forward a new plan. (Russell 1992: 122-131)
This plan included the following points. (ibid.: 131-32)
1) China would peg new Chinese paper money to pound sterling with 1 pound
equaling to 6 Chinese Yuan.
2) Britain would raise a loan up to 10 million pounds with Chinese customs as
collateral.
3) In addition, China was negotiating with the United States on selling 200 million
ounces of silver to get another fund.

90
4) China needed to balance budget within 18 months with an extra 20 million pound
loan for covering budget deficit.
5) Chinese Central Bank should be converted into an independent Central Reserve
Bank through sale of share to the public.

British Ministry of Finance expressed consent to the new plan, yet with a premise of
seeking concert with Japan. In addition, American cooperation was a requisite. British
Ministry of Foreign Affairs foresaw impossibility of the Japan cooperation. In fact,
Nanjing had begun to prepare for a “bold and unilateral” currency reform by and large
coherent with Leith-Ross’ new plan even without agreement on silver purchase with the
United States. On October 28, H.H. Kung told Leith-Ross he would declare paper
currency reform soon. That was the announcement on the night of November 3
rd
. (Russell
1992: 132-133, 140; Wang Xi 1990: 49-51)

Efforts of Chinese nationalists in securing stabilization funds
Announcement of currency reform decree almost immediately brought forward
currency battles. Between England and America, it was a battle in securing monetary
interest in East Asia by persuading China to peg her currency to pound sterling or US
dollar; between China and Japan, it was a battle in enabling and disabling success of the
new monetary system.

91
Great Britain became the first power in supporting Nanjing’s strategic move. On
November 4, immediately after publication of the currency reform decree, British
Ambassador Cadogan (Note: Britain elevated diplomatic level from minister to
ambassador in early 1935), issued an Order in Council prohibiting British subjects in
China from making payments in silver, instead, replacing it with new Chinese legal
tender. (Yao Huiyuan 1997) Further, British banks responded promptly to Nanjing’s
request in transferring silver deposits, which occupied 44.9% of all foreign banks’ silver
deposit. Later, American and European banks followed while Japanese banks refused to
do this transfer until 1937.
Besides, Japan obstructed transfer of silver in North China. (Counselor Committee of
People’s Bank of China 1991: 200-220) Announcement of currency reform greatly
shocked Japanese army and government; they issued statements condemning China’s
move without consultation with Japan beforehand. “To maintain peace in East Asia,
Japan will resolvedly block its success even resorting to military power.” (Zheng Huixin
1986) Japan decided to speed up detaching North China from Nanjing under cover of an
autonomy movement. A key measure was to forbid transfer of silver even in foreign
banks to Nanjing. Silver in North China was kept there until the end of WWII. (Liu
Xuheng 1992: 84-85; Zheng Huixin 2002: 65)
At first, value of the new Chinese Yuan was delineated in pound sterling, which made
an appearance of pegging between Chinese Yuan and pound sterling though Great Britain

92
did not provide a loan as stabilization fund for the new Chinese Yuan. Such link might
come from the fact that HSBC, the British bank giant, managed to help raise initial funds
for Chinese legal tender reform before Sir Frederick Leith-Ross’ arrival in China in
September 1935. (Counselor Committee of People’s Bank of China 1991: 239-240) But
more probably, it was a kind of tactics of Nanjing - China tried to involve Euro-American
powers in resisting Japan, and a fixed exchange rate with pound sterling in contrast to
floating exchange rate with other currencies seemed to indicate support from Britain.
Actually contemporaries deemed that China had joined the Sterling Bloc; considering
presence of Sir Leith-Ross when China suddenly announced her currency reform and the
fixed exchange rate between the two currencies, it was a natural deduction. And such
tactics, called Yi-Yi-Zhi-Yi in Chinese, i.e. using foreigners to outwit other foreigners,
was not new to western powers. Amau Doctrine criticized this “trick,” and Morgenthau
pointed out this also during his talks with Chinese diplomats. As a weak state, China had
little methods to protect her interest; it was really a painful tactic.
China, in recognition of impossibility of acquiring a stabilization fund from Great
Britain immediately, turned to the United States for this fund. On 1935 October 26, H.H.
Kung telegraphed Shi Zhaoji, Chinese Ambassador to the United States (the diplomatic
level between China and America was elevated from minister to ambassador in May,
1935.), that Nanjing would soon implement some “constructive” move and look forward
to response to the proposal of exchanging US dollar with Chinese silver. Chinese

93
Minister of Finance promised to the United States there was no so-called currency bloc of
China-England or China-Japan. Two days later, such request got positive response from
Morgenthau, who expressed concern about use of the fund acquired from the United
States. In addition, Morgenthau did not forget to voice his intention of transferring funds
through an American bank instead of HSBC. (Counselor Committee of People’s Bank of
China 1991: 240-242)
Obviously, Morgenthau was glad to hear Nanjing’s move. He deemed it a great
opportunity of sustaining Nanjing in resisting Japan and securing success of US dollar in
this international currency war. Chinese request for aid when Leith-Ross was still in
China was a victory of the United States. Simultaneously, Morgenthau was also happy for
reaction from the State Department. In memorandum of October 29, official from the
State Department expressed consent to Treasury’s guiding. Without doubt, announcement
of Chinese currency reform provided a rare opportunity of promoting American interests
in China without provocation to Japan. In addition, as we mentioned above, radical
strength leading to silver enactment waned rapidly at the end of 1935. Furthermore, early
in December, British officials at Hong Kong nationalized silver within this colony and
immediately began to sell it in large quantities. Observers expected China to follow suit,
prompting Morgenthau to take action. On December 7, Roosevelt decided to begin
lowering the world price. Silver senators’ response was out of Morgenthau’s expectation;
they readily accepted the change. Pittman claimed that what he concerned most was the

94
domestic price alone. So ended the Senate Silver Bloc’s drive to restore the international
monetary status and value of the white metal. (Russell 1992: 142-143; Brennan1969:
146-149)
But first negotiation between Shi Zhaoji and Morgenthau did not go smoothly. Shi
wanted to guarantee amount and price of sale of silver; i.e. Shi intended to maximize the
funds acquired through silver sale, or if possible, a loan from the United State directly.
What Morgenthau cared most was link of Chinese Yuan with US dollar, not any other
currency or gold; in addition, the capital raised by American silver purchase must be only
used for stabilization fund. Of course, Morgenthau still did not forget deposit of this fund
in American banks in New York. Further, Morgenthau tried to meddle in membership of
the management committee of the stabilization fund. He wanted to arrange two American
citizens in this 3-person committee. Yet Shi Zhaoji told Morgenthau that Nanjing could
not accept membership arrangement of the stabilization committee, neither the sole link
of Chinese Yuan with US dollar. (Counselor Committee of People’s Bank of China 1991:
242-244; Russell 1992: 143-145)
On November 6, Morgenthau emphasized his concern on link between Chinese Yuan
and US dollar. In addition, Morgenthau, confident that he was in vantage ground in this
negotiation, admonished Shi “You do not have enough money for this gambling. Once
people find out you do not have enough fund, your currency reform scheme will fail. You
need this money while we are ready to present this aid.” Shi Zhaoji did not give direct

95
response, but hinted that an American loan might guarantee a link of the 2 currencies. As
to this loan suggestion, it got a flat refusal. Morgenthau did not want to involve in this
complex issue if he had the option of currency link. (Russell 1992: 145-147; Counselor
Committee of People’s Bank of China 1991: 244-245)
It seemed Shi had no bargaining chips now. Yet on November 7, financial counselor of
British embassy visited Morgenthau and informed him of Hong Kong’s intention of
renunciation of its silver standard. The guy asked Morgenthau whether Washington
would buy silver from Hong Kong directly; otherwise Hong Kong had to sell it in the
open market. Thus it meant a hidden threat. If the United States did not buy silver from
Hong Kong directly, then Great Britain might dump the silver in the world market; this
definitely led to fall of silver price, which America would not want happen. Therefore,
Morgenthau realized he was not in vantage ground as he thought. (Russell 1992:
147-148)
H.H. Kung telegraphed Shi Zhaoji on November 8 that Japanese pressure blocked
currency pegging. At last, Morgenthau decided to accept Kung’s decline of linking
currencies and seek other solutions as a friendly sign. His focus switched to deterring link
between Chinese Yuan and pound sterling, and preventing dumping of silver by China
and Hong Kong.
The best method was to lower silver price to an unprofitable threshold, i.e. a silver
price of 40 cents per ounce. This, Morgenthau thought, would block dumping of silver

96
and encourage Chinese to sell silver to the United States, thus giving Washington some
advantage in currency pegging issue.
Yet Morgenthau did not get support from Roosevelt. The President, though changed his
attitude toward the Silver Purchase Act, did not think highly of this idea. He educated his
Treasurer that lowering was easy but re-elevation would be not so easy. After scrutiny of
other proposals, Roosevelt asserted that the best way to aid China now was to make a
decision on this issue. Comparing to Nanjing’s request of purchase of 100 million ounces
of silver and Morgenthau’s advice of 25 million ounces, Roosevelt’s choice was 20
million ounces. This was congruent with his belief to avoid trapping in Chinese issues: if
the situation there did not collapse, then less action was desirable. (Russell 1992:
148-149)
Maybe China and her currency reform encountered an impasse here. Then on
November 13, Shi Zhaoji rushed into Morgenthau’s office and told Morgenthau that
Japanese Yokohama Specie Bank attacked foreign reserve of Chinese currency, and now
China only had 35-to-40-million foreign exchange and gold reserve. Under such
emergency, the United States provided a fund to China. (Russell 1992: 150)
Actually, the United States Secretary of Treasury was taking a new standpoint, which
was, Chinese currency reform was not a pure monetary issue; instead, it was a political
one. Such change of Morgenthau’s thought not only was proved in his restraint of
demanding pegging of Chinese Yuan to US dollar when Shi requested an urgent aid, but

97
also was testified in his talk with British financial counselor. When the latter asked him, if
England alone provided loan to China with a premise of pegging to pound sterling, what
was his response? Morgenthau answered, “If it is a fair deal, then we will not object to
it.” It was an unimaginable response from Morgenthau. Evidently he changed his
standpoint, even in the key issue of currency link. But both American State Department
and British Ministry of Foreign Affairs did not change their position. British Ministry of
Foreign Affairs thought Leith-Ross delegation had trapped Great Britain in the mire, and
its task should be discarded totally. The sole outcome of Sir Leith-Ross’ visit was being
provoking Japan and speeding up Japanese action when British force was near bottom in
East Asia. (ibid.: 150-154)
Such worry was not unreasonable. In November, Manchukuo, the puppet state,
announced its currency be pegged to Japanese Yen. Japan insisted that London encourage
China to initiate this daring move; and as revenge, Tokyo might boycott the coming
London Navy Armament Conference. In December, the Hebei-Chahar Political
Committee was set up, indicating that North China was becoming a semi-autonomous
political entity. In addition, silver smuggling in North China was becoming rampant.
Puppet regime east of Beijing established a so-called merchandise toll tax, which was
much lower than tariff, a disguised encouragement of smuggling. Contemporary
journalist exclaimed that “free trade still had some designated ports, but here along the
coast line all were free trade area.” (Zheng Huixin 2002: 60)

98
Morgenthau noticed abnormal increase of export of Japanese silver, which explained
Chinese silver smuggling; obviously Japan was using American silver policy to make
profit, which might be used in navy expansion. After Hong Kong followed China’s suit in
December and dumped silver, silver was flooded into the world market. This time, the
President accepted Morgenthau’s proposal of lowering silver price. (Russell 1992:
155-157) Obviously, now the United States Treasury Department and State Department
both considered the silver issue from political perspective though their position was
almost opposite. As to silver senators, they understood their time had gone except
stubborn ones.
Before moving on, we could do a small summary here. Silver issue was originally a
pure domestic issue in the United States; to advance this cause, proficient silver senators
appealed to “international cooperation” such as London Economic conference. But with
the change of domestic and foreign scene, the silver issue really turned into an
international one. In our case, it became a wrestling field of China, Euro-American
powers and Japan in East Asia. Then this monetary issue was handled from political
perspective. And a domestic monetary issue became an international political one.
Japanese incessant thrust caused Britain and the United States to change their attitude
toward Chinese currency reform, though only partially at first. As Japanese move in 1941
led to overall confrontation that developed into WWII, Japanese pressure on China
caused change of Anglo-American policy. On 1935 December 5, Great Britain and the

99
United States issued a pronouncement at the same time, restating their recognition of
1922 Nine Power Treaty on “equal opportunity” of powers in China. This evidently
indicated that change of Anglo-American policy. 4 days later, the London Navy
Conference was held and Japan demanded a larger Navy arms quota; and after this
request was refused, Japan quitted the disarmament conference in 1936 January and
speeded up Navy expansion.
In East Asia, Japan continued to advance detachment of peripheral regions from China.
In 1936 January, Inner Mongolia Political Committee was set up. Meanwhile,
Morgenthau felt certain that a comprehensive plan of providing aid to China was
inevitable. Besides, Shi Zhaoji informed him that 3-million-US-dollar-loan from RFC
had to be paid back beforehand, causing a foreign reserve shortage. Morgenthau
demanded a direct negotiation with Chinese financial authorities. Maybe he was tired of
such endless negotiations through agent. In addition, reports on British move in China,
such as Leith-Ross’ advice on debasement of silver fractional coins, disturbed him.
(Russell 1992: 157-158)

Delegation of K.P . Chen
Without doubt, H.H. Kung, Minister of Finance, and T.V . Soong, Chairman of the
Central Bank, were the best candidates. This time, though the State Department still
expressed worry due to Soong’s radical anti-Japan position, the President agreed. In

100
evidence, Roosevelt was adjusting his East Asian policy. However, this time Nanjing was
prudent. Chiang Kai-shek forbade Soong to go in case that provoked Japan. H.H. Kung
could not attend due to his responsibility as financial chief. Finally on February 8, K.P.
Chen, a private banker, was determined as the key financial envoy from China.
(Counselor Committee of People’s Bank of China 1991: 249-254; K.P. Chen 2002: 172)
It seemed candidacy of K.P. Chen was proposed by American Treasury officials, and
accepted by H.H. Kung. But K.P. Chen was really a proper candidate for this task. K.P.
Chen was General Manager of Shanghai Commercial Savings Bank, one of the largest
private commercial banks in China. He was also managing director of Bank of China and
trustee of the Central Bank. In addition, K.P. Chen was a friend of Morgenthau. Their
friendship could trace back to long term business cooperation between Chen’s Shanghai
Bank and Chemical Bank, of which Morgenthau was Chairman and General Manager.
Chen also had good relationship with H.H. Kung, T.V . Soong and Chiang Kai-shek. H.H.
Kung was trustee of Chen’s Shanghai Bank. Kung’s and Soong’s mother were among
earliest share holders of Shanghai Bank. In addition, Chen was chairman of “Jiangsu and
Shanghai Fiscal Committee,” which raised fund for Chiang Kai-shek in 1927 and
sponsored establishment of Nanjing government. Further, he had good relationship with
other prominent Chinese bankers such as General Manager of Bank of China, Chang
Kia-ngau. Besides good relationship with officials and bankers, Chen was also a key
figure in Chinese financial industry. He started Shanghai Bank with only 100,000 Yuan

101
capital, and built up this small bank into a leading commercial bank. Obviously, his lack
of official position with financial background, plus his good relationship with Chinese
and American authorities, made him a perfect match. (Wu Jingyan 1991: 10-11; Zi
Yaohua 1991: 75)
Because of all these factors such as good relationship between Chen and Morgenthau,
Morgenthau and Roosevelt’s determination to aid China, negotiation between K.P. Chen
delegation and the Treasury went smoothly though there was still some noise. For
instance, Morgenthau suspected that Chinese Ministry of Finance tried to make more
profit by raising world silver price before selling to him, and China eliminated such
suspicion by selling 2.15 million ounces in London immediately. Moreover, K.P. Chen
assured his friend that fund raised through silver sale would be deposited in New York.
Further, K.P. Chen expressed his goodwill that his task was not just to sell silver and
acquire American aid; his government was ready to stabilize the silver market. (Russell
1992: 165)
Finally a silver agreement was arrived at. According to this protocol, China made some
concessions, which was listed as follows. (Counselor Committee of People’s Bank of
China 1991: 256-261; Russell 1992: 167)
1) Fund raised through silver sale would be deposited in New York.
2) China would issue new silver coins with purity no lower than 72%, and mint part of
new silver coins in the United States.

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3) Nanjing would cancel the decree that set the upper purity limit of 3% for arts and
industrial use of silver.
4) Silver would constitute no less than 25% of currency issuance reserve.
5) Chinese currency was not linked with any other currency; thus Chinese Ministry of
Finance would change the former quoted exchange rate style since it created a false
impression of being pegged to pound sterling.

On 1936 May 14, a treaty was signed, and the United States would purchase 75 million
ounces of silver, far in excess of the initial 35 million ounces suggested by Morgenthau.
In addition, there was a secret clause, which authorized New York Federal Reserve to
provide 20-million-US-dollar “US dollar foreign exchange” with 50 million ounces of
Chinese silver deposited in New York as the collateral. In evidence, Morgenthau went a
little bit far in subsidizing Chinese government. Compared to the United States’ prudent
move in 1935 November, this treaty provided a huge financial aid to Nanjing government.
(Russell 1992: 167-168; Zhuo Wenyi 1982: 207)
Beyond all doubt, American aid greatly facilitated stabilization of Chinese currency
reform, and indeed indicated change of American East Asian policy. Further, this treaty
was not the last aid Washington gave to Nanjing. In 1937 July, the United Stated provided
another fund to China. (Russell 1992: 169-171) In 1941, the United States signed the
stabilization fund protocol and provided another funds to China in Currency battle during

103
the World War II. (Jin Zhengxian 2004: 146) From the process of currency reform,
especially the “painful” efforts of Chinese diplomats to secure American financial aid,
which was essential to success of this currency reform, we could see domestic factors
were always the top priority of American diplomacy even if Roosevelt and Morgenthau
were personally inclined to China.
Though American aid to China was based on self interest, it still proved to be of
importance to Chinese currency reform and the following Anti-Japan war. (Russell 1992:
170-171) In sum, American domestic politics determined her diplomacy, which, because
of American power, may have an unimaginable impact on other nations. And other
nations’ corresponding reaction might also change the environment of American domestic
policy, thus promoting change in American domestic policy. The Silver Purchase Act and
China’s dethronement of silver as currency is a case in point.

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Chapter 6: Domestic factors of 1935 currency reform

Just now we discussed how China’s currency reform was influenced by American
silver policy and East Asian situation in 1930s. Yet if we review Chinese factors
promoting 1935 currency reform, we may conclude that China’s legal tender reform in
1935 was more a result of China’s circumstances in early 1930s and Nanjing nationalist
government’s internal and external policies. “No doubt, even if the United States had not
driven the price of silver up, China would sooner or later have left the silver standard and
gone on a paper standard.” (Friedman 1992: 79)

Pains of Chinese people in early 1930s and Budget Deficit of Nanjing government
In early 1930s, China experienced a series of great drought, flood, famine, and wars.
From 1928 to 1930, an uninterrupted great drought hit Northwest provinces of Gansu,
Shaanxi, Shanxi, and Henan. This drought generated an appalling suffering in these
provinces. For instance, in some counties of Shaanxi province, mortality rate arrived at
13.2%, and the highest rate reached 15.4% in Fengxiang County. Recent research
indicated that, of the population of 13 million in Shaanxi, more than 3 million people
died while more than 6 million were displaced. The two numbers constituted 70% of this
province’s population.

105
The disaster at the same time caused a lot of land to be lay waste. In Guanzhong, the
main crop producing area of Shaanxi Province, two thirds of land was discarded.
Starvation even caused tragic of human eating human. Other provinces under the
repercussions of this great drought were no better. Further, the catastrophe was
aggravated by battles between Chiang Kai-shek, and Feng Yuxiang and Yan Xishan, local
military strongmen in Northwest. Plundering of crops for troops raised mortality greatly
in Henan, the province less hit by the great drought. By the way, the battles between
Nanjing central government and Northern war lords caused Zhang Xueliang, the
North-east military leader, to send troops to North China, rendering a vacancy in
Manchuria, which gave Japanese army an opportunity for the Shenyang Incident. (Zheng
Lei 2001: 61-62; Shen Sherong 2002: 37; Li Yucai 2007: 99-100)
If the drought in Northwest only meant suffering in part of China, then in 1931, a
nationwide flood, without parallel in Republican era, harassed main rivers of China,
especially in lower Yangtze valley and Huai River valley, the most important economic
region in Republican China. Altogether this flood overflew 23 provinces, leaving an over
3,700,000 death toll and 100 million victims. (Li Wenhai 1993: 291)
Obviously one of the dire outcomes of these calamities was stagnation of economic
activities, contributing a shortage of government tax sources. Nanjing nationalist
government, to gain recognition from western powers, admitted government debt by late
Qing regime and former Beijing Republican regimes totally. This burdened Nanjing

106
Government with a heavy load. Therefore, Nanjing government, already trapped in heavy
burden of former governments’ debt, faced greater challenge in execution of its internal
and external policies.
As to policy of Nanjing nationalist government, it could be summarized into 2 points –
to unify China by military force, and to construct China when facing Japan’s invasion.
Chiang Kai-shek, leader of Nanjing nationalist government, summarized his domestic
policy in a well-known slogan “Rang Wai Bi Xian An Nei” – to cope with external
aggression, an internal unity was a premise. Under such policy, Nanjing Government did
not ever stop internal military activities during the “golden decade,” the 10 years since
the establishment of nationalist government in Nanjing until outbreak of anti-Japan war.
Incessant military operations trapped Nanjing Government in a swelling military
spending. In 1928, it was 210 million Yuan; in 1929, it was 245 million Yuan; in 1930, it
was 312 million Yuan; in 1932, it was 321 million Yuan; in 1933, it was 373 million Yuan;
in 1934, it was 440 million. (Yang Peixin 1985: 17)
This swelling military expenditure trapped government budget in a huge financial
deficit. To balance this deficit, lots of bonds were issued. However, issuance of
government bond inevitably engendered debt expending, which included interest cost and
principal payment. Thus, expanding military expenditure and debt cost constituted heavy
burden of Nanjing government.

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Military & debt expenditure of Nanjing nationalist government (million Yuan)
Year
Military
Expenditure
Debt
Expenditure
Total
Expenditure
Percentage of
Military fee
Percentage
of Debt
1928 210 158 434 48.4% 36.4%
1929 245 200 539 45.5% 37.1%
1930 312 290 714 43.7% 40.6%
1931 304 270 683 44.5% 39.5%
1932 321 210 645 49.8% 32.6%
Table 2: Military & debt expenditure of Nanjing nationalist government
Note: Debt expenditure included interest and principal payments for internal loan and
foreign loan, plus interest and principal paid for reparations since late Qing.
Source: Annual Fiscal Report for 1932 and 1933. (Jiang Liangqin 2003: 55)

The above table evidently told us that, heavy burden of military and debt expenditures
disabled the possibility of healthy government finance.
To improve government finance, T.V . Soong at first tried to reduce number of soldiers.
In June 1928, T.V . Soong chaired the national economic conference, which drew up a
plan of limiting number of troops and hence military spending. However, Chiang
Kai-shek only wanted to demobilize troops of local governments while enlarging troops

108
loyal to central government. Finally, with battles between Chiang Kai-shek and other
Nationalist military strongmen, disarmament plan became a blank plan on paper. (Jiang
Liangqin 2003: 54-55)
Since reducing expenditure was not a practical solution, T.V . Soong switched to
increasing government revenue. His method was to expand revenue base of central
government. First of all, Soong clarified tax division between central government and
local governments, and set up financial commissioner offices in charge of tax collection
all over China. Secondly, Soong abolished notorious likin tax and replaced it with a
uniform toll; this step not only guaranteed tax collection for central government, but also
removed a long-term block of domestic transportation. Besides expansion of revenue
base, Soong also reformed some kinds of taxes collected by central government. On 1928
July 25, T.V . Soong revised the customs duty treaty with American diplomats; the new
treaty recognized China’s right in regulating customs duty. In the same year, China
revised the customs duty treaty with European nations. When the last country, Japan,
recognized China’s right in 1933 May, China regained her right and customs duty became
a kind of revenue that Chinese Central Government could completely control. In addition,
regained customs tax became the largest revenue source of Nanjing government. As to
the salt tax, a traditionally important tax whose control was appropriated by foreigners
due to collateral status in Beijing Republican era, Soong took it back, and unified its
collection and tax rate. Thus, Soong set up a tax system with customs duty, salt tax, and

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toll as the 3 main sources; and tax revenue of Nanjing Government went up greatly, for
instance, tax revenue in 1932 increased by 1.2 times than in 1928. In 1932, government
budget realized balance for the first time in the Republican era. (Wang Zhaoan 1982: 179)

number
percentage in
total tax
number
percentage
in total tax
number
percentage
in total tax
1928 179.1 69.1% 29.5 11.4% 29.7 11.5% 259.3 91.9%
1929 275.5 59.7% 122.1 26.4% 40.5 8.8% 461.7 94.9%
1930 313.0 58.5% 150.5 28.1% 53.3 10.0% 535.0 96.6%
1931 369.7 60.1% 144.2 23.4% 88.7 14.4% 615.2 98.0%
1932 325.5 55.8% 158.1 27.1% 79.6 13.7% 583.0 96.6%
Total tax
revenue
Percentage of
the 3 taxes in
total tax
Nanjing Governemnt's customs duty, salt tax, and toll tax and their percentage in total tax revenue
customs duty salt tax toll tax
Year

Table 3: Constitution of Nanjing government’s main tax revenue
Source: 1935 Fiscal Almanac compiled by Nationalist Government Ministry of Finance

Yet these reform measures did not meet fund requirement of military activities, and
governmental debt, especially internal government bonds, inevitably climbed. For
example, 136,000,000-Yuan government bonds were issued from 1927 May to 1928 June.
Furthermore, to raise money, Nanjing Government often forced business communities to
purchase government bonds, which inflamed resent among business communities who
supported Nanjing government. Yu Qiaqing, old friend of Chiang Kai-shek and Chairman
of Shanghai Commercial League, publicized his criticism of Chiang’s policy on the
Journal News. “Nowadays, contrary to what the government has promised, disarmament
has not been implemented, democracy has not been prepared; important construction
such as infrastructure and education concerning people’s benefit did not show any sign of

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planning. What we see today is that old taxes remain while new taxes are imposed, excess
soldiers remain while government expenditure swells, mass movement does not settle
down while labor disputes multiply. Misery of people’s living and destitution of business
drive me tremble.” Obviously, business communities, of which financial industry is a key
component, were losing confidence in Nanjing government. (Jiang Liangqin 2003: 52)
When fiscal reform could not guarantee expanding budget deficit, T.V . Soong had to
continue the policy of issuing government bonds. (Jiang Liangqin 2003: 56) In addition,
Soong, in recognition of the risk of original compulsive purchase policy, implemented a
high-interest-plus-large-discount policy to attract more investors to buy government
bonds. Further, he consulted with institution investors, mainly banks in Shanghai,
guaranteeing to them that Ministry of Finance would limit military expenditure (thus
government bonds would have a reliable payment assurance), and Nanjing government
would commit to creation of a friendly business environment. Soong’s policy facilitated
issuance of Nanjing Government bonds. (Jiang Liangqin 2003: 57-63)
In fact, high return from government bonds caused an abnormal business environment.
With flood, drought, continuous civil wars, and Japanese invasion, investors did not have
better opportunities than in government bonds speculation. Midnight, the well-known
novel by Mao Dun, had a very vivid description on contemporary government bond
speculation – “Nowadays, anyone who had even only several piece of coins would rush
into government bond speculation hoping to make a fortune.” (Qian Junrui 1936: 8)

111
Therefore, Soong wanted to realize a healthy government finance, or a balanced budget.
However, Soong’s budget financing idea was contrary to Chiang Kai-shek’s military
unification policy. In 1933, to keep his promise that Ministry of Finance would not issue
new bonds after 1932’s bond restructuring, Soong had to borrow from commercial banks
to fund Chiang’s military attack to Chinese Communists’ soviet base. Hence, when
Chiang Kai-shek demanded him to continue issuance of government bonds, Soong
responded with a resignation that popularity of Communism was not a pure military
phenomenon, and imbalance between political, military, and economic matters was the
cause of spreading communism. Nationalist’s central political committee accepted his
resignation and appointed H.H. Kung as his successor. (Jiang Liangqin 2003: 64-66)
Above we have spoke of Soong’s deposition due to his failure in the Sino-America
wheat-cotton loan and aggressive anti-Japan standing. But the most significant reason
that led to Soong’s removal was his attitude of non-cooperation with Chiang’s military
activity. (Russell 1992: 71)
As a matter of fact, Soong’s protestation was at least partly correct. High return of
government bonds led to concentration of banks’ capital on speculation, resulting in
shortage of capital for industrial and commercial enterprises. As we knew, capital in these
enterprises could really promote economic development while speculation hurt financial
health. In addition, civil wars funded by government bonds destructed economy, driving
capital in fighting inland areas to Shanghai, and participating in speculation. Such flee of

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capital caused an abnormal prosperity in Shanghai while leaving inland regions in further
decline. Meanwhile, civil war could sustain due to these capital flee from inland areas.
This constituted a vicious circle – issuance of government bonds sustained civil war
while civil war drove capital from fighting regions to Shanghai, joining government
bonds’ speculation and sustaining issuance of bonds. (Qian Junrui 1936: 8-11)
Soong’s idea actually represented thought of some prominent financial figures. They
discerned the risk of capital’s concentration on government bond speculation, and the
necessity of conducting capital into economic development. Their worry was proper. A
commercial bank under normal business environment will concentrate on commercial
loan, and investments in securities were only complementary. At large, loan was bigger
than investments in securities. For instance, loan of American commercial banks varied
from twice to 1.13 of investments in securities during 1957 to 1967. (Bai Junnan 1972:
110)
Chang Kia-Ngau, General Manager of Bank of China, the largest Chinese commercial
bank, argued for the importance of investing in rural areas to withstand possible
economic crisis in a speech given in Shanghai St. John University. (Luo Gengmo 2002:
31) In its 1928 annual report, Bank of China declared that it would assist industrial and
commercial enterprises by low interest capital. (Shi Yufu 1984: 187) However, Bank of
China did not implement its plan very well. Of course, wars in Republican era created a
turbulent business environment, thus banks could only invest in government bonds. But

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even large banks could not invest their capital into enterprises that needed capital
urgently; Nanjing government’s deficit financing policy, huge expenditure in
non-production activities such as military operations should assume some criticism.
Indeed, Japanese seizure of Manchuria greatly reduced trade and customs revenue of
China, deteriorating Chinese economy and government revenue, which had been hit
heavily by flood, famine, and civil wars. (Russell 1992: 9-10) Successor of Soong, H. H.
Kung, changed Soong’s balanced budget policy to deficit financing, which greatly
subsidized Chiang’s military activities and later preparations for lurking Japanese
invasion. Though H.H. Kung implemented further reform in land tax, miscellaneous taxes
& customs duty, and levied new taxes, he still had to appeal to issuance of government
bonds. (Jiang Liangqin 2003: 88-95) However, with 1934’s silver crisis and falling credit
of government bonds, issuance of government bonds was not as smooth as in Soong’s
balanced budget era. Kung tried to absorb newly-issued government bonds by the Central
Bank. Yet the capacity of the Central Bank was not limitless. And Nanjing Government
picked up the compulsive purchase club again, demanding all commercial banks buy
government bonds or other securities with at least one fourth of deposit. This regulation
activated strong opposition from commercial banks and did not get a chance of execution.
(Jiang Liangqin 2003: 103-104) Obviously, to control influential banks would facilitate
issuance of government bonds and continue the deficit financing.

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Currency reform as effort of unification and construction
Under the policy of deficit financing, it was inevitable for Nanjing Government to
seize control of financial industry. It was just a matter of time. As to currency reform, it
was naturally the next step after controlling the financial industry. For example, the 2
largest commercial banks, Bank of China and Jiaotong Bank, had a good credit among
business communities and the government could use this good credit of their banknotes
to share some financial expenditure.
As a matter of fact, Chiang Kai-shek, former businessman in Shanghai, was familiar
with this financial “technique,” and used it much earlier before 1935 currency reform.
For instance, in 1927, Chiang Kai-shek issued fractional paper money in name of
“General Commander of Northern Expedition Army” in the area along Tianjin-Nanjing
railroad to fund military activities. Another case in point was that, when Chiang
established the Farmer Bank to provide financial aid in annihilation of Communists’
soviet base in Southern China, the first major move of this bank was to issue 500,000
Yuan banknotes. (Yang Peixin 1985: 17)
Obviously, a financial support with unlimited paper money issuance power would be
an almighty source in sustaining Chiang’s military move in unifying China and
counteracting Japan’s invasion. To gain control of financial industry, Nanjing government
carried on a series of endeavors, of which control of banks and issuance of currency were
the 2 key points.

115
As to the former, Nanjing Government established a Central Bank. On 1928 November
1, Nanjing Nationalist Government’s central bank was formally set up in Shanghai.
Chiang attended the opening ceremony in person and declared that “a solid foundation of
our central government and construction of politics are dependent on success of this
central bank.” As to the latter, T.V . Soong chaired the national economic conference in
1928 in Shanghai, and proposed that currency issuance was the domain of central
government, asserting that local governments’ banks did not have the power to issue
currency and private banks neither had such power. (Yang Peixin 1985: 17)
Evidently, monopoly of currency issuance was a power that Nanjing government was
acquiring since her establishment; to Nanjing government, it was a choice of occasion –
nationalists needed a good timing to seize this power as their full control of China. In this
combat, their rivals were not Mao Zedong’s financial experts; to be more precise, their
main rivals were Nanjing government’s former patrons – Jiangzhe caifa, i.e., financial
magnates in Yangtze Delta area, whose main elements included management of Bank of
China, and other executives of important commercial banks in Yangtze Delta area. K.P.
Chen, the banker envoy to Washington in China’s attempt to secure a US dollar foreign
reserve loan from the United States, was also considered to be a member of this group.
Jiangzhe caifa provided a lot of financial aid to Nanjing government, sponsoring
establishment of Chiang’s Nanjing government and its initial military activities against
northern war lords and Chinese Communists. However, their attempt of keeping

116
independence and resisting unlimited issuance of governmental bonds, which definitely
hurt health of financial industry, meant an expanding conflict between Nanjing
Government and Chinese financial industry. (Mao Chih-li 1996: 132-147, 152-153)
To meet fund requirement of pacifying Southern Communists soviet base and
preparing for Northern Japanese lurking invasion, Nanjing Government needed to control
financial industry and gain complete support of Chinese financial institutions. Acquisition
of the control of financial industry mainly concentrated on acquisition of control of the 2
leading national banks – Bank of China and Jiaotong Bank, which actually were central
banks in the era of Beijing Republican regimes. Beijing Republican regimes also tried to
control the two banks to subsidize its military and political activities since 1917. However,
management of the two banks, especially executives of Bank of China, fight against such
maneuvering; until the end of Beijing Republican regimes, the two banks especially Bank
of China instead became a totally private bank, strengthening its independence. (Mao
Chih-li 1996: 436)
Nanjing nationalist government also tried to acquire control of Bank of China.
Immediately after establishment of Nanjing government, T. V . Soong, then Chinese
Minister of Finance suggested reorganization of Bank of China to be the Central Bank.
Yet such attempt was also thwarted by Chang Kia-ngau, General Manager of Bank of
China. (Mao Chih-li 1996: 303-306) The silver crisis, however, provided a lifetime
chance for Nanjing Government.

117
The silver crisis not just generated economic difficulties but also synchronized with
delay of government bonds payment of principal and interest, which led to reduction of
issuance of commercial banknotes (government bonds could be used as collateral of
commercial banknotes according to regulations of then Chinese Ministry of Finance).
Decrease of banknotes issued by commercial banks aggravated shortage of currency
supply, which further deteriorated economic crisis. (Mao Chih-li 1996: 441-442)
Economic crisis not only swallowed small businesses; even giant players such as
Shanghai Shenxin textile group, the leading textile enterprise was put into auction by its
creditor, HSBC, to pay back bank loan. This event was a deep provocation to Chinese
business community. On 1935 March 14, Shanghai Commerce Chamber and Association
of local merchants pledged Chinese Ministry of Finance to save domestic industrial and
commercial enterprises, and schemed a loan plan – to release a 5 million Yuan loan, a
huge amount at that time, through the syndicate of the Central Bank and commercial
banks. Under such emergency, on 1935 March 20, Central Political Convention of
Kuomintang enacted a decree, one provision of which demanded issuance of 1935
government bonds of 100 million Yuan, and 30 million Yuan, 25 million Yuan, and 10
million Yuan be injected into Central Bank, Bank of China, Jiaotong Bank respectively to
“reinforce” capital and facilitate capabilities of the 3 banks to save Chinese enterprises.
The injected capital was deemed to be equity share and enjoyed the same privilege as
commercial equity share such as determining membership of Board. On 1935 March 28,

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Chinese Ministry of Finance implemented this decree and took over Bank of China. (Mao
Chih-li 1996: 435-447)
Obviously, it was an arrangement incongruous with routine business practice –
un-cashed bond as equity. Chinese Ministry of Finance, to reduce resistance of
reorganization, appointed Chang Kia-ngau, soul of Bank of China, as senior vice
president of the Central Bank. Though most members of Board questioned absurdity of
such practice incongruous with business routine, Chang Kia-ngau, not as he did during
the last governmental reorganization attempts, accepted this appointment; thus Bank of
China, the largest Chinese commercial bank at that time, was totally controlled by
Nanjing Government. Jiaotong Bank was also turned into a State-owned bank. Evidently,
Chang Kia-ngau’s acceptance resulted from the overall crisis the nation was facing. As
Chang Kia-ngau said in his diary, “gazing at the national economic crisis, I cannot do
anything harmful to the nation due to personal or sectional interests.” (Mao Chih-li 1996:
447-448) Thus, Nanjing government achieved the control that Beijing Republican
regimes never attained; this was a key move in controlling Chinese financial institutions.
Besides control of the 2 leading national banks, Nanjing Government also acquired
control of some other key commercial banks using the same trick. (Mao Chih-li 1996:
473)
With the complete control of financial institutions, naturally, monopoly of currency
issuance was the next step. In fact, paper money or governmental banknote was a

119
“desirable” currency arrangement to Nanjing Government – it meant the Central Bank
could dispense with the metal reserve that gold or silver standard needed. “Honest metal
is Chinese people’s safeguard against dishonest government.” Under a metal standard, the
government could not issue currency uninterruptedly to make ends meet; on the contrary,
the government could transfer its fiscal crisis to the people through issuance of paper
money under a managed currency arrangement. (Elliston 1935: 678)
As early as in September 1935, Chiang told his army officials that “the trend of social
evolution will prove that paper money definitely would replace metal currency and
become the sole currency.” Currency reform in March 1933, i.e., Fei Liang Gai Yuan, the
currency reform abolishing use of silver bullion and entitling sole use of silver coin, was
a preparation for later paper money arrangement. At that time, western merchants had a
worry that such currency move would agitate fall of price of Chinese silver coins, or
over-issuance of banknotes. (Yang Peixin 1985: 18)
Through control of 2 largest commercial banks, Bank of China and Jiaotong Bank,
Nanjing government facilitated 1935’s currency reform. As such, Chinese Ministry of
Finance could use resources of the two giant banks, such as availability of bank branches,
to promote conversion of silver coins to paper money. This could be proved by later
revision of the initial currency reform decree – though issuing right of paper money was
centralized only in the Central Bank, exchange of paper money was still primarily carried
through networks of Bank of China and Jiaotong Bank. Another case in point was that

120
Chinese Ministry of Finance used Bank of China and Jiaotong Bank as vehicles in
reception of deposits from the 9 Chinese banks that had issuing right. (Counselor
Committee of People’s Bank of China 1991: 207)
Actually, though Northern Expedition promoted a nominal nationwide unification, real
unification was never attained in Republican era. Since 1927, Chinese communists
established multiple soviet regimes all over China; in addition, a lot of former regional
forces were still on their throne. Regional warlords accepted nationalist’s ideology as the
ruling principal, but in concrete regional affairs, it was usually hard for Nanjing central
government to carry out nationwide policies. Obviously, central government tried to
change such impasse when there were opportunities. This was also why wars between
Chiang Kai-shek, the central nationalist military forces, and Li Zongren, Yan Xishan, and
Feng Yuxiang, the regional nationalist military powers broke out soon after establishment
of Nanjing government. (Chen Nengzhi 1982: 160)
North China local government, under instigation of Japan, refused to transfer silver to
Nanjing. As a matter of fact, some other regions also refused to implement the November
3 currency reform decree. A case in point was that Shaanxi province withheld transfer of
silver to the central government either. In Shaanxi, central government’s legal tender was
parallel to local provincial bank’s banknotes in circulation. As to North China,
regionalists not only refused transfer of silver but also minted fractional coins themselves,
which was directly opposite to decree of currency reform. In addition, Guangdong and

121
Guangxi also adopted a non-cooperation policy in Nanjing government’s currency reform.
With gradual implementation of a nationwide currency in these regions since 1935,
Nanjing government’s currency reform in practice assumed a function of unification. This
was another important outcome of 1935 currency reform. From this point, a nationwide
currency reform would be inevitable as part of efforts in advancing unification.
(Counselor Committee of People’s Bank of China 1991: 221-238)
Of course, the direct sequence of 1935 paper currency reform was to greatly relieve
Nanjing government of the chronic deficit financing. As Arthur N. Young, the long-time
financial advisor of Nanjing government said “Only after success of 1935 currency
reform, could Nanjing Government sense the possibility of solving dangling government
debt problem, and a bright financial and economic future.” (Zhuo Zunhong 2006: 355)
This attested to the truth that internal financial pressure was the primary force in
consideration of 1935 currency reform. This was also proved by Nanjing government’s
decisive decree on Nov. 4 even without clear supportive sign from Great Britain and the
United States.
Paper currency was much easily manipulated by issuing authority. In late 1940s, when
Nationalists launched civil war with Chinese Communists and supported the military
actions with over-issuing Fa Bi, the 1935 legal tender, this caused a hyperinflation,
generating a hard time for urban residents and contributing to Nationalists’ defeat in
mainland China. Some scholars even thought “the war with Japan and the internal civil

122
war between the nationalist government and Mao Zedong’s Communists would
undoubtedly have led to inflation in China in any event.” (Friedman 1992: 63)
This was the negative side of 1935 paper currency reform. However, another fact must
be pointed out. That was, during the so-called “golden decade” lasting from 1927 to 1937,
nationalist government made huge progress in building up a new nation. For example,
from 1933 to 1937, 3,300-kilometer railway was constructed; as to highway construction,
it was more than 100,000 kilometers, and highway network extended to southwest and
northwest regions, the most underdeveloped Chinese areas. In addition, more than
10,000-kilometer telegraph cable was added into the existing communication network
(telegraph was the most advanced communication method at that time). As to science and
research, Nanjing government established the central academy of research and appointed
the renowned scholar, Cai Yuanpei, as chairperson to promote academic atmosphere.
Childhood education was extended – in 1936, 42% school age population attended
elementary school while this number was 17% in 1929; meanwhile this number was 60%
among high school age population. (Li Gongqin 2004: 101)
Obviously, considering haunting famines, civil wars, and external threat, nationalists’
progress was impressive with a deficit budget. 1935 paper currency reform, to be
objective, contributed to this progress. Economic difficulties caused by the silver
purchase act provided an opportunity of currency reform. From this perspective,
American Silver Purchase Act was helpful politically to Nanjing government since it had

123
given the Nationalist government an excuse to extend its power over Chinese banks’
foreign reserves and Chinese banks themselves, a power Nanjing government was
pursuing since her establishment.
In fact, currency reform as a counter-attack to Japanese invasion was pretty effective.
Kimura Masutaro, Japanese advisor to the Central Bank of the Chinese puppet state of
Wang Jingwei, thought highly of currency reform in 1939. He said, “If there was no
currency reform in 1935, then there was no resistance in 1937.” Chiang Kai-shek also
said in 1939, “if the war broke out before our currency reform, then China might have
collapsed or have to sue for peace. But now our currency system has created a good
financial and economic foundation for the current long-term resistance.” In short, “If
there were no the new legal tender, Chinese resistance to Japanese invasion must be more
difficult.” (22, Zhuo Zunhong 2006: 354; Jin Zhengxian 2004: 124)
As to the immediate effect of currency reform in settling the silver crisis, declaration of
paper currency reform decree immediately improved economy. Price level stopped falling
and assumed recovery; export and import came alive; foreign exchange rate was stable.
(Shi Yufu 1984: 279)
In sum, currency reform was inevitable because of complicated international
circumstances China faced in 1930s’. Yet we could assert that even without American
Silver Purchase Act and Japanese invasion, Chinese nationalist government still might
pursue such a currency reform through the above analysis. Just as American silverites

124
seized opportunities to promote silver interests, Nanjing government seized this
opportunity to promote their “golden decade” construction. (Jiang Liangqin 2003: 66-85)

1935 currency reform as end of currency reform efforts since late Qing
Further, the 1935 legal tender reform completed the currency reform efforts since late
Qing. Currency system since late Qing was totally in chaos. Concerning the type of
currencies, there were copper coins, silver bullion, silver coins, and paper money.
Concerning the issuing institutions, there were more complicated. Paper money alone had
5 kinds of issuing houses, which consisted of traditional credit houses such as silver shop
and pawnshops, provincial silver bureaus, modern banks including foreign banks and
Chinese banks, other agencies such as railway bureaus and commercial firms. In addition,
some foreign currencies such as Russian ruble and Japanese Yen were in circulation in
some regions such as Manchuria. Monetary unit was not uniform either; even silver
redeemed by a similar certificate issued by a single bank was different in different places.
(Peng Xinwei 1965: 813-816) Then basic thought of currency reform efforts since late
Qing was to tidy up a “clean” silver standard before implementation of the gold or
foreign exchange standard, which was road map of both Beijing Republican and Nanjing
nationalist government. (Shi Yufu 1984: 231-235)
Until the establishment of Nanjing government, though the currency system was still in
chaos, it was much better than in late Qing. First of all, use of silver bullion, the widely

125
used form of silver since Ming, was to a large extent condensed. Governmental book
keeping was stipulated in standard silver coin though some enterprises still
simultaneously adopted unit of silver bullion weight, tael, and standard silver coin as the
accounting unit. Secondly, Standard silver coins were widely accepted even in some
remote inland regions; and standard silver coin was the practical currency standard.
Silver fractional coins were being replaced by fractional banknotes. As to copper coins,
the oldest Chinese currency, it was dying and almost disappeared in 1930s. And issuance
of paper money was concentrating in the hands of the 2 leading Chinese banks – Bank of
China and Jiaotong Bank. Even some commercial banks that had banknote issuing right
also used paper money of Bank of China to reduce financial risk. (Shi Yufu 1984:
218-229)
When Nanjing government was founded in 1927, the most obstructive monetary
problem was the parallelism of silver bullion and standard silver coins. Use of silver
bullion was very inconvenient. Both name and form of silver bullion were various. There
was no universal standard or regulation, and each region had its own measurement and
customary practice; neither could the purity of silver be told immediately. Each payment
involved measurement by scale, but the purity could not be determined by scale. Though
tael was the common unit of weight, it varied in different regions and different practice.
As such, the tael unit for different provinces was different. Actually, inconvenience of
silver bullion had promoted circulation of silver coins, first foreign coins, then coins

126
minted by Qing provincial regimes, and last standard silver coin mint by Republican
central government. Purity was a bigger problem since purity quotient varied from the
lowest to highest. (Peng Xinwei 1965: 777-779)
Some commercial hubs such as Hangzhou and Qingdao had spontaneously cancelled
adoption of silver bullion and used silver coin only. But the 3 largest commercial ports,
Shanghai, Tianjin, and Hankou still used silver bullion and coin at the same time until
1930s. Though business groups such as Shanghai General Chamber of Commerce,
National League of Commerce, National Bank Consortium called on cancellation of use
of silver bullion as early as 1917, some renowned economists such as Ma Yinchu
elaborated on the necessity of abdication of silver bullion, silver bullion was still in
position because of support of traditional money shop, who earned a large part of profit
on conversion between different silver bullions and standard silver coins. In addition,
foreign banks also objected to such reform because part of their revenue came from gap
between foreign exchange and silver bullion & coin. (Shi Yufu 1984: 242-245)
On 1933 April 6, Nationalist government began to implement the decree that totally
cancelled use of silver bullion. (Counselor Committee of People’s Bank of China 1991:
94-100) This reform terminated silver bullion use as currency since Yuan dynasty (Peng
Xinwei 1965: 554-555), and further eliminated chaos in currency system since late Qing.
As Zi Yaohua said, 1933 reform solved the problem harassing Chinese business
communities for a long time, and realized silver currency unification effort intended by

127
several generations of reformers; it was worth a full recount in history. In addition, this
reform promoted development of Chinese financial industry; since then traditional money
shops were replaced by modern banks. (Zi Yaohua 1991: 63-65)
The abolition of the tael as a standard of value in 1933 established the standard silver
coin system throughout most of China. Yet there remained the highly difficult problem of
the silver standard. A metallic standard always runs the risk of losing its stability if a
power with vast economic resources set its mind on accumulating great stocks of that
metal. We have seen demonstration of this danger in the most striking way by the effects
of the American silver purchases on the monetary system and economy of China. And a
managed currency system was naturally the next step. (Young 1940: 350)
As we know, an efficient financial system is a must to economic development of a
country; a central bank and a managed currency system are core of this efficient financial
system. With a managed currency arrangement, the central bank can use monetary policy
to adjust running of the real economy. The nationalist government was often criticized for
its corruption, especially accumulation of wealth through banks and financial markets it
controlled. But this fact did not mean a managed currency system itself was the mistake.
Managed currency system was a better option than metal standard since it empowered the
monetary authority to execute a better control of the real economy. Financial markets
always exhibit a herding behavior and are subject to fads, bubbles, and overreaction, and
need guide of the central bank through efficient monetary policy. China’s currency reform

128
in 1935 was what this nation needed at that time. Considering evolution of Chinese
currency, 1935 legal tender currency reform was a milestone in development of Chinese
currency system, advanced Chinese currency greatly; and it was the first time in history
that China adopted an effective managed currency system. 1935 currency reform put an
end to chaos in Chinese currency system, completed the unification efforts since late
Qing, and promoted economic development.
In fact, the economic growth or positive effect in resisting Japan alone sufficed to
prove this currency arrangement’s merits. Though many scholars criticized 1935 currency
reform due to the hyperinflation people suffered in late 1940s, this reform’s positive
meaning could not be denied. Through 1935 legal tender reform, China acquired essential
elements of a modern currency system. But this was not all. China also increased her
financial strength much materially in other ways. Most of the silver was removed from
the coast cities, where it was vulnerable to seizure, and converted into gold and bank
balances abroad, where they were available to make foreign purchases and to support the
currency. The stabilization of exchange at a level adapted to the nation’s needs led to a
favorable balance of payments, so that large amounts of foreign exchange were bought
and added to currency reserves. Further, the transition from a metallic to a fiduciary
currency made it possible to expand China’s currency and credit if necessary in an
emergency. All these developments provided effective resources and financial machinery
without which China’s stubborn resistance to Japan’s attack would not have been possible.

129
Some scholars even argued that, the Japanese attack on China in the summer of 1937
precisely because China’s strength was growing so rapidly. (Young 1940: 351)
In conclusion, 1935 currency reform was a milestone in history of Chinese currency.
Though it was adopted to cope with silver crisis caused by external factors, it was still
determined by internal factors of China in 1930s.
In addition, our analysis revealed a pattern in relationship between China and the
United States. China often did not initiate change, but her internal factors prepared for a
change, which external factors would precipitate. As to the United States, her domestic
issue usually manifested itself in international interaction because of her power, and this
might lead to environment shifting of the original domestic issue, and finally alternated
the environment of the domestic issue and the issue itself. China and the United States,
during such interaction, shaped their relationship.

130
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Bai, Junnan, Huobi yinhang xue, Sanmin shuju yinxing, 1972; Currency and Banking,
published by Sanmin publishing house, Taipei, 1972
Barnes, James A., Myths of the Bryan Campaign, The Mississippi Valley Historical
Review, V ol. 34, No. 3 (Dec., 1947), pp. 367-404
Bratter, H. M., Silver: Some Fundamentals, The Journal of Political Economy, V ol. 39,
No. 3 (Jun., 1931), pp. 321-368
Bratter, Herbert M., The Silver Episode, The Journal of Political Economy, V ol. 46, No. 5
(Oct., 1938), pp. 609-652
Brooks, Sydney, An English View of Mr. Bryan, The North American Review, V ol. 198,
No. 692 (Jul., 1913), pp. 27-39
Brennan, John A., Silver and the First New Deal, University of Nevada Press, Reno
Nevada 1969
Carothers, Neil, Silver: A Senate Racket, The North American Review, V ol. 233, No. 1
(Jan., 1932), pp. 4-15
Cassel, Gustav, The Downfall of the Gold Standard, Oxford at the Clarendon Press 1936
Chen, Nengzhi, Beifa hou zhongguo defang zhuyi de fazhan: 1926-1937 nian de Sichuan,
guangxi he shanxi, chosen from “zhongguo xiandaishi lunji dib a ji: shi nian jianguo,”
edited by Zhang Yufa, Lian jing chuban shiye gongsi, 1982, pp. 153-169;
Development of local-ism after Northern Expedition: Sichuan, Guangxi and Shanxi
during 1926-1937, chosen from “V olume 8 of analects of modern Chinese history: the
golden decade,” edited by Zhang Yufa, published by Lianjing publishing company,
1982, pp. 153-169
Chen, K.P., Shanghai dang an shi liao cong bian: Chen guang fu riji, compiled by
Shanghai shi dang an guan, published by Shanghai shudian chubanshe, 2002; Series
of historic material from Shanghai archives: Dairy of K.P. Chen, Compiled by
Shanghai Municipal archives, published by Shanghai books publishing house, 2002

131
Clunas, Craig, Superfluous Things: Material Culture and Social Status in Early Modern
China, University of Hawaii Press, Honolulu 2004
Cochran, Sherman, Businesses, Governments, and War in China: 1931-1949, in
“American, Chinese, and Japanese: Perspectives on Wartime Asia 1931-1949,”
co-edited by Akira Iriye and Warren Cohen, Scholarly Resources Inc. copyright 1990,
Wilmington DE, pp. 117-145
Cognosco, London Fog: The Silver Lining, The North American Review, Vol. 236, No. 3
(Sep., 1933), pp. 193-196
Cohen, Warren, American Leaders and East Asia: 1931-1938, in “American, Chinese, and
Japanese: Perspectives on Wartime Asia 1931-1949,” co-edited by Akira Iriye and
Warren Cohen, Scholarly Resources Inc. copyright 1990,Wilmington DE, pp. 1-27
Cole, Wayne S., Senator Key Pittman and American Neutrality Policies, 1933-1940, The
Mississippi Valley Historical Review, V ol. 46, No. 4 (Mar., 1960), pp. 644-662
Counselor Committee of People’s Bank of China, Zhonghua minguo huobishi ziliao di yi
ji, Shanghai renmin chubanshe, 1986; V olume I of compilation of monetary historic
material in Republican China era, published by Shanghai People’s publishing house,
1986
Counselor Committee of People’s Bank of China, Zhonghua minguo huobishi ziliao di er
ji, Shanghai renmin chubanshe, 1991; V olume II of compilation of monetary historic
material in Republican China era, published by Shanghai People’s publishing house,
1991
Crider, John H., Cross of Silver, The North American Review, V ol. 245, No. 2 (Summer,
1938), pp. 280-291
Elliston, H. B., China Dethrones Silver, Foreign Affairs, V ol. 14, No. 2 (Jan., 1936), pp.
334-339
Elliston, H. B., Silver, East and West, Foreign Affairs, V ol. 13, No. 4 (Jul., 1935), pp.
666-679
en.wikipedia.org/wiki/Bimetallism
en.wikipedia.org/wiki/Bland-Allison_Act
en.wikipedia.org/wiki/Coinage_Act_of_1792

132
en.wikipedia.org/wiki/Coinage_Act_of_1873
en.wikipedia.org/wiki/Free_Silver
en.wikipedia.org/wiki/Grover_Cleveland
en.wikipedia.org/wiki/Gold_Standard_Act
en.wikipedia.org/wiki/Long_Depression
en.wikipedia.org/wiki/Panic_of_1873
en.wikipedia.org/wiki/Panic_of_1893
en.wikipedia.org/wiki/Sherman_Silver_Purchase_Act
en.wikipedia.org/wiki/William_Jennings_Bryan
Everest, Allan Seymour, Morgenthau, the New Deal and Silver: a Story of Pressure
Politics, King’s Crown Press, Columbia University, New York, 1950
Fels, Rendigs, "The Long-Wave Depression, 1873-79". The Review of Economics and
Statistics. History of Money and Banking in the USA, Murray Rothbard, Hardcover
2002, p.154-155
Friedman, Milton, the Crime of 1873, The Journal of Political Economy, V ol. 98, No. 6
(Dec., 1990), pp. 1159-1194
Friedman, Milton, Franklin D. Roosevelt, Silver, and China, The Journal of Political
Economy, V ol. 100, No. 1 (Feb., 1992), pp. 62-83
Friedman, Milton & Schwartz, Anna Jacobson, A Monetary History of the United States:
1867-1960, Published by Princeton University Press, Princeton 1963
Froman, Lewis A., Bimetallism – Reconsidered in the light of recent developments, The
American Economic Review, V ol. 26, No. 1 (Mar., 1936), pp. 53-61
Greenhouse, Steven, With a Receptive White House, Labor Begins to Line Up Battles,
The New York Times, Business Day, September 23, 2009

133
Hosoya, Chihiro, The United States and East Asia in the mid-1930s: The Cotton and
Wheat Loan, in “American, Chinese, and Japanese: Perspectives on Wartime Asia
1931-1949,” co-edited by Akira Iriye and Warren Cohen, Scholarly Resources Inc.
copyright 1990, Wilmington DE, pp. 73-91
“Immigration Act of 1924”, www.u-s-history.com/pages/h1398.html
Israel, Fred L., the Fulfillment of Bryan's Dream: Key Pittman and Silver Politics,
1918-1933, the Pacific Historical Review, V ol. 30, No. 4 (Nov., 1961), pp. 359-380
Johnson, G. Griffih Jr., the Treasury and Monetary Policy: 1933-1938, New York, Russell
& Russell, Reissued in 1967
Laughlin, James Laurence, The history of bimetallism in the United States, D. Appleton
and Company, New York 1898 4th edition
Li, Gongqin, Zhonghua minguo fazhan shi – jian lun liangge zhongguo de hudong yu
chongtu, Youshi wenhua shiye gufen youxian gongsi, 2004; History of development
of Republic of China – also on interaction and collision between PRC and ROC,
published by Young Lion Culture Ltd. In 2004
Li, Jie, Jiuyiba shibian hou biyuan waijiao zhongjie de yuanyin tanxi, chosen from
“Guangxi jiaoyu xueyuan xuebao,” No. 2, 2004, Serial No. 70, pp. 88-92; Analysis of
end of Shidehara diplomacy after Shenyang Incident, chosen from “Journal of
Guangxi education college,” No. 2, 2004, Serial No. 70, pp. 88-92
Li, Wenhai, Jindai zhongguo zhaihuang jinian xubian, Hunan jiaoyu chubanshe, 1993;
sequel on famine in modern China, published by Hunan education publishing house,
1993
Li, Xuetong, Qi qi shi bian qian guomin zhengfu de jingji beizhan – yi weng wen hao wei
hexin de kao cha; Economic preparation for war of nationalist government before
Marco Polo Incident – centering on Weng Wenhao;
http://www.lsqn.cn/ChinaHistory/YESHI/200703/57940_2.html
Li, Yucai, Yu shan gan da han yu xi bei jun de wajie, chosen from “Huai bei mei tan
shifan xueyuan xuebao (zhexue shehui kexue ban),” No. 2 V ol. 28, April 2007, pp.
98-101; Drought in Henan, Shaanxi, and Gansu and collapse of Northwest army,
chosen from “Journal of Huaibei Coal Industry Teachers College (Philosophy and
Social Sciences),” No.2, V ol. 28 Apr. 2007, pp. 98-101

134
Liu, Xuheng, Wu qianwan fabi chubeijin linan ji, chosed from “jinxiandai xin biji
congshu: huozhi zhaji,” editor Xiao Qian, Shangwu Yinshuguan (Xianggang) youxian
gongsi, 1992, pp. 84-85; the story of 50 million legal tender reserve, chosen from
series of modern and contemporary new style essay: the album of business, editer
Xiao Qian, published by Commercial Press (Hong Kong) Ltd., 1992, pp. 84-85
Ji, Peng, Riben biyuan waijiao yu guosongling shijian, Minguo dangan, April 2006, pp.
59-63; Relationship between Japanese Shidehara diplomacy and Guo Songling
Indident, Archives of Republican China
Jiang, Liangqin, Nanjing guomin zhengfu neizhai wenti yanjiu (1927-1937) – yi neizhai
zhengce ji yunzuo jixiao wei zhongxin, Nanjing daxue chubanshe 2003; Research on
domestic bonds of Nanjing nationalist government (1927-1937) – centering on policy
and effect, published by Nanjing University Press in 2003
Jin, Zhengxian, Lun guomin zhengfu de fabu huazhi wending zhengce jiqi zai kangzhan
zhong de zuoyong, chosen from “kangri zhanzheng yanjiu,” No.4 2004, pp. 123-151;
On stabilization policy of legal tender of nationalist government and its effect in the
Anti-Japan war, chosen from “research on Anti-Japan war,” No.4 2004, pp. 123-151
Luo, Gengmo, Zhongguo shehui kexuanyuan xuezhe wenxuan: Luo gengmo ji, published
by zhongguo shehui kexue chubanshe, 2002; anthology of Chinese academy of Social
Science: collection of Luo Gengmo, published by Chinese academy of social science
Press, 2002
Macesich, George, Money & Democracy, Praeger Publishers, One Madison Avenue, New
York, NY 10010, First published in 1990
Mao, Chih-li, Minguo renwu zhuanji congshu: Zhang Jia ao yu zhongguo yinhang de
jingying yu fazhan(1912-1935), Guo shi guan yin xing, 1996; Biographies of R.O.C
Celebrities No. 3 Chang Kia-Ngau and the Management and Development of Bank of
China, 1912-1935, Academia Historica, Taipei, Taiwan, 1996
Morrison, Rodney J., the London Monetary and Economic Conference of 1933: A Public
Goods Analysis, American Journal of Economics and Sociology, V ol. 52, No. 3 (July,
1993)
Nichols, Jeannette P., Roosevelt's Monetary Diplomacy in 1933, the American Historical
Review, V ol. 56, No. 2 (Jan., 1951)

135
Nichols, Jeannette P., Silver Diplomacy, Political Science Quarterly, V ol. 48, No. 4 (Dec.,
1933), pp. 565-588
Nugent, Jeffrey B., Exchange-Rate Movements and Economic Development in the Late
Nineteenth Century, The Journal of Political Economy, V ol. 81, No. 5 (Sep. - Oct.,
1973), pp. 1110-1135
Oye, Kenneth A., the Sterling-Dollar-Franc Triangle: Monetary Diplomacy 1929-1937,
World Politics, V ol. 38, No. 1 (Oct., 1985), pp. 173-199
Peng, Xinwei, Zhonguo huobi shi, Shanghai renmin chubanshe, 1965; Chinese Monetary
History, published by Shanghai People’s Publishing House in 1965
Pittman, Key, Silver in Our Monetary System, Proceedings of the Academy of Political
Science, V ol. 16, No. 1, Money and Credit in the Recovery Program (Apr., 1934), pp.
27-36
Pu, Jingshi, 1931 nian changjiang dashuizhai he hunan sheng de shuizhai jiuji – yi
guomin zhengfu jiuji shuizhai weiyuanhui yu hunan sheng dangju zhijian de guanxi
wei zhongxin, chosen from “yi jiu san ling niandai de zhongguo,” compiled by
zhongguo shehui kexueyuan jindaishi yanjiusuo minguoshi yanjiushi, Sichuan shifan
daxue lishi wenhua xueyuan, 2006, pp. 827-838; Flood of Yangtze in 1931 and relief
in Hunan – centering on relationship between flood relief committee of nationalist
government and Hunan provincial authorizes, chosen from “China in 1930s,”
compiled by Research office of Republican era history of Institute of Chinese modern
history of Chinese Academy of Social Science and School of history and culture of
Sichuan Normal University, 2006, pp. 827-838
Qian, Junrui, Zenyang yanjiu zhongguo jingji, Shanghai shenghuo shudian faxing, 1936;
How to analyze Chinese economy, published by Chinese Life publishing house, 1936
Quan, Hansheng, Zhongguo jingjishi yanjiu (xia), Xinya yanjiusuo chuban, Hong Kong,
1973; Research on Chinese economic history (the last volume), published by Xinya
Institute, Hong Kong, 1973
The Revolutionary Committee of the Chinese Kuomintang, Introduction of Qian
Changzhao, 2008; http://www.minge.gov.cn/txt/2008-09/27/content_2496853.htm
Ruetten, Richard T., Burton K. Wheeler and the Montana Connection, Montana: The
Magazine of Western History, V ol. 27, No. 3 (Summer, 1977), pp. 2-19, Montana
Historical Society

136
Russell, Michael B., translated by Zheng Huixin, Yuanwai jituan yu meiguo dongya
zhengce – sanshi niandai meiguo baiyin jituan de huodong, Fudan daxue chubanshe,
1992; Chinese translation of “American Silver Policy and China, 1933 – 1936,”
published by Fudan University Press, 1992
Sewall, Arthur F., Key Pittman and the Quest for the China Market, 1933-1940, The
Pacific Historical Review, V ol. 44, No. 3 (Aug., 1975), pp. 351-371
Shannon, Fred A., Book review for “The Trumpet Sounded: William Jennings Bryan and
His Democracy, 1896-1912 by Paul W. Glad,” The Journal of Southern History, V ol.
27, No. 2 (May, 1961), pp. 275-277
Shen, Sherong, Qian xi 1928-1930 nian xibei da hanzhai de tedian ji yingxiang, chosen
from “Guyuan shizhuan xuebao (shehui kexue ban),” No.1 V ol. 23, Jan. 2002, pp.
36-40; Discussion on characteristic and influence of 1928-1930’s Northwest drought,
chosen from “Journal of Guyuan Teachers College (Social Sciences),” No.1 V ol. 23,
Jan. 2002, pp. 36-40
Shi, Yufu, Zhongguo huobi jinrong shi lve, Tianjin renmin chubanshe, 1984; A brief
history of Chinese currency and finance, published by Tianjin people’s publishing
house, 1984
Song, Kaiyou, ershi shiji ershi niandai riben dui hua waijiao zhi nizhuan: cong biyuan
dao tianzhong, chosen from “jianghai xuekan” February 2005, pp. 166-170; Reversion
of Japanese diplomacy toward China in 1920s: from Shidehara to Tanaka, chosen
from “Jianghai academic periodical,” February 2005, pp. 166-70
Sun, Yigang & Li Weiqing, Zhongguo caizheng shi cankao ziliao, Zhongyang guangbo
dianshi daxue chubanshe, 1984; Reference material for Chinese fiscal history,
published by Central Broadcast University Press in 1984
Shiroyama, Tomoko, Zai lun guomin zhengfu 1935 nian de bizhi gaige, chosen from
“jindai zhongguo: jingji yu shehui yanjiu,” edited by Zhu Yingui and Dai Angang,
Fudan daxue chubanshe, 2006, pp. 240-252; re-analysis of 1935 currency reform of
nationalist government, chosen from “modern China: economic and social analysis,”
edited by Zhu Yingui and Dai Angang, published by Fudan University Press, 2006, pp.
240-252
Tang, Lixing, Shangren yu zhongguo jinshi shehui, Zhejiang renmin chubanshe, 1993;
Merchants and modern Chinese society, Zhejiang People’s publishing house, 1993

137
Timberlake, Richard H., Monetary Policy in the United States: An Intellectual and
Institutional History. University of Chicago Press, 1993 pp. 179
Usui, Katsumi, Japanese Approaches to China in the 1930s: Two Alternatives, in
“American, Chinese, and Japanese: Perspectives on Wartime Asia 1931-1949,”
co-edited by Akira Iriye and Warren Cohen, Scholarly Resources Inc. copyright 1990,
Wilmington DE, pp. 93-115
Wang, Xi, A Test of the Open Door Policy: America’s Silver Policy and Its Effects on
East Asia: 1934-1937, in “American, Chinese, and Japanese: Perspectives on Wartime
Asia 1931-1949,” co-edited by Akira Iriye and Warren Cohen, Scholarly Resources
Inc. copyright 1990, Wilmington DE, pp. 29-71
Wang, Zhaoan, Yangge zhu “zhongguo jianguo zhi nuli” pingjie, first issued in 1979,
chosen from “zhongguo xiandaishi lunji dib a ji: shi nian jianguo,” edited by Zhang
Yufa, Lian jing chuban shiye gongsi, 1982, pp. 177-182; Commentary on Arthur
Young’s “efforts of China in golden decade,” chosen from “V olume 8 of analects of
modern Chinese history: the golden decade,” edited by Zhang Yufa, published by
Lianjing publishing company, 1982, pp. 177-182
Wu, Jingyan, Shanghai shangye chuxue yinhang lishi gaishu, chosen from “jindai
zhongguo gongshang jingji congshu: cheng guang fu yu shanghai yinhang,” zhongguo
wenshi chubanshe, 1991, pp. 1-44; A brief history of Shanghai commercial savings
bank, chosen from “series on modern Chinese industry and commerce: K.P. Chen and
Shanghai Bank,” compiled by Editorial Board of “series on modern Chinese industry
and commerce,” published by Chinese Humanities and History publishing house, in
1991, pp. 1-44
www.americanforeignrelations.com/A-D/Doctrines-The-hoover-stimson-doctrine.html
Yang, Peixin, Jiu zhongguo de tonghuo pengzhang, Renmin chubanshe, 1985;
Hyperinflation in old China, People’s publishing house, 1985
Yang, Shusen, Zhongguo bizhi jianli yu gaige zhi yanjiu, published by Sanmin shuju,
1973; research on establishment and reform of Chinese currency, published by
Sanmin publishing house, 1973
Yao, Huiyuan, Lun fabi gaige, published on “xueshu yuekan,” No. 5 in 1997; On legal
tender reform, published on “monthly journal;”
http://jyw.znufe.edu.cn/znjjslt/xstd/yhy/xscg/t20051115_0136.htm

138
Yao, Huiyuan, Fabi jiqi zai kangzhan zhong de lishi zuoyong, 2005; Legal tender and its
historic function in the Anti-Japan war, 2005;
http://jyw.znufe.edu.cn/znjjslt/xstd/yhy/xscg/t20051115_0137.htm
Young, Arthur N., On the Chinese Financial Front, Foreign Affairs, V ol. 18, No. 2 (Jan.,
1940), pp. 350-356
Yu, Peiming, Huobi shihua, chosen from “gudai jingji zhuanti shihua hedingben,”
published by zhonghua shuju, Beijing, 1983, pp. 117-155; Historiette on currency,
chosen from “bound edition of ancient economy issues,” published by China books
company, Beijing, 1983, pp. 117-155
Zheng, Huixin, Buxiang quanmian qinhua zhanzheng qian de zhunbei-lun jiuyiba shibian
hou riben dui zhongguo caizheng de pohua, chosen from “Kangri zhanzheng yanjiu,”
No.3 2002, pp. 49-67; Preparing for overall invasion to China – on Japan’s destroy on
Chinese finance after Shenyang Incident, chosen from “research on Anti-Japan war,”
No.3 2002, pp. 49-67
Zheng, Huixin, Riben diguo zhuyi dui 1935 nian bizhi gaige de pohui, chosen from
“jindai shi yanjiu,” No. 1 1986; Destroy of Japanese imperialism to 1935 currency
reform, chosen from “modern history research,” No. 1 1986
Zheng, Lei, Minguo shiqi guangzhong diqu shengtai huanjing yu shehui jingji jiegou
bianqian (1928-1949), chosen from “zhongguo jingji shi yanjiu,” No. 3 2001, pp.
60-74; Shift of ecological environment and social economic structure of Guanzhong
region in Republican era (1928-1949), chosen from “Research on Chinese economic
history,” No. 3 2001, pp. 60-74
Zhou, Chunying, Ying mei ri san guo yu guomin zhengfu de bizhi gaige, chosen from
“lishi jiaoxue,” No. 6 2005, Serial No. 499, pp. 24-28; Great Britain, the United States
and Japan and Chinese nationalist government’s currency reform, chosen from
“History teaching,” No. 6 2005, Serial No. 499, pp. 24-28
Zhuo, Wenyi, Kangzhan qian zhongguo fabi zhengce zhi tantao (1935-1937), first issued
in 1979, chosen from “zhongguo xiandaishi lunji dib a ji: shi nian jianguo,” edited by
Zhang Yufa, Lian jing chuban shiye gongsi, 1982, pp. 183-222; Discussion on Chinese
legal tender policy before 1937 (1935-1937), chosen from “V olume 8 of analects of
modern Chinese history: the golden decade,” edited by Zhang Yufa, published by
Lianjing publishing company, 1982, pp. 183-222

139
Zhuo, Zunhong, Kangzhan baofa hou wending fabi de yinbian cuoshi – duizhao dang an
kan lishi (1937-1939), Chosen from “yi jiu san ling niandai de zhongguo,” compiled
by zhongguo shehui kexueyuan jindaishi yanjiusuo minguoshi yanjiushi, Sichuan
shifan daxue lishi wenhua xueyuan, 2006, pp. 354-369; contingency measure in
stabilizing legal tender after outbreak of anti-Japan war – research history with
archives material (1937-1939), chosen from “China in 1930s,” compiled by Research
office of Republican era history of Institute of Chinese modern history of Chinese
Academy of Social Science and School of history and culture of Sichuan Normal
University, 2006, pp. 354-369
Zi, Yaohua, Wo yu chen guang fu, chosen from “jindai zhongguo gongshang jingji
congshu: cheng guang fu yu shanghai yinhang,” zhongguo wenshi chubanshe, 1991,
pp. 45-80; I and K.P. Chen, chosen from “series on modern Chinese industry and
commerce: K.P. Chen and Shanghai Bank,” compiled by Editorial Board of “series on
modern Chinese industry and commerce,” published by Chinese Humanities and
History publishing house, in 1991, pp. 45-80
Zuo, Zhisheng, Zhongguo jindai caizhengshi conggao, Xinan caijing daxue chubanshe,
1987; Manuscript of Chinese modern fiscal history, published by Southwest Financial
University Press in 1987

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Mercantilism and marketization? Analysis of China's reserve accumulation and changes in exchange rate regime using the monetary policy trilemma

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Creator Liu, Feng (author)

Core Title Currency reform in 1930s China and the American silver policy: a case analysis of how Chinese monetary policy was influenced by American policy and contemporary East Asian circumstances

School College of Letters, Arts and Sciences

Degree Master of Arts

Degree Program East Asian Area Studies

Publication Date 10/28/2009

Defense Date 10/05/2009

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag 1930s,American silver policy,Chinese currency reform,East Asian circumstances,OAI-PMH Harvest

Place Name China (countries), USA (countries)

Language English

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Advisor Cooper, Eugene (committee chair), Chen, Baizhu (committee member), Lin, Thomas W. (committee member)

Creator Email fengl@usc.edu,francis.f.liu@gmail.com

Permanent Link (DOI) https://doi.org/10.25549/usctheses-m2699

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Rights Liu, Feng

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Source University of Southern California (contributing entity), University of Southern California Dissertations and Theses (collection)

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