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Financial Prices Stabilized for Recovery of the National Economy (1949 - 1950)


 

During the recovery of the national economy, under the instructions of the Central People's Government, People's Bank of China made effective effort in fighting against black market of foreign currencies, gold and silver, abolishing the privileges of foreign banks in China, prohibiting foreign currency circulation, unifying foreign exchange management, controlling inflation and stabilizing financial prices.

Bank of China also took active part in this campaign, contributing a lot to the recovery of the national economy.

Ⅰ. Participation in purchase of the Jin Yuan Quan (Chinese bills issued by the Kuomintang in 1948) issued by the Nationalist Government.

On May 28, 1949, Shanghai Military Control Commission issued an order on conversion of Jin Yuan Quan before June 5. Bank of China General Management Department and Shanghai Branch received 34,242 customers coming for Jin Yuan Quan conversion within a week with a total conversion value of of 5.3 trillion yuan of Jin Yuan Quan based on the exchange rate stipulated by the Military Control Commission: RMB 1 (old currency) against 100,000 yuan of Jin Yuan Quan, accounting for 15% of 35.9 trillion yuan, total value of Jin Yuan Quan converted in Shanghai. Bank of China was ranked the first among 216 banks and money shops participating in the conversion in Shanghai.

Ⅱ. Elimination of foreign currency black market and provision of foreign currency conversion

Before the liberation, due to consecutive hyper devaluation of domestic currency, foreign currencies, especially US dollars and the UK governed HK dollars flowed in the Mainland via various channels, circulating in some key cities, especially those in coastal areas. According to statistics, by the liberation in 1949, about USD 300 million and HKD 580 million were circulating throughout China.

To defend national sovereignty, it was imperative to prohibit circulation of foreign currencies, including the black market. Therefore, Bank of China began to acquire foreign currencies upon the liberation of Tianjin. The acquisition spread from the north to the south. Branches of Bank of China in different regions undertook the work of foreign currency conversion in accordance with the announcement made by the Military Control Commission and local foreign exchange management regulations. With joint efforts of its employees, Bank of China successfully completed the task of foreign currency conversion.

Ⅲ. Elimination of black markets of gold and silver and conversion of gold and silver

Before the liberation, as a result of galloping inflation, gold and silver, especially silver dollar, replaced banknotes to circulate on the market in both urban and rural areas throughout China. After the liberation, explicit policy was stipulated for management of gold and silver: on one hand, RMB must occupy the market, gold and silver circulation must be eliminated and the black markets must be fought against; on the other hand, legal possession of gold and silver would not be allowed without forced conversion.

Bank of China branches in different regions acted as agencies for People's Bank of China in carrying out the conversion of gold and silver. Thanks to positive publicity and earnest implementation of the policy, Bank of China was fairly successful in the conversion.

Ⅳ. Launch of goods saving business based on RMB conversion


Bank of China launched the goods saving business based on RMB conversion

From Tianjin liberation in January, 1949 to the early period of foundation of the People's Republic of China, price rising was intensified due to such factors as insufficient supply, tight treasury and weak state-owned economy. In February, 1950, prices rose throughout the country, which, according to the statistics of 25 major commodities in 15 major cities, led to the wholesale price index up to 226.3 in March, 1950 from 100 in December, 1949.

The goods saving business was a kind of special value preservation business designed to fight against financial speculation and stabilize market prices with the unstable RMB and violent price fluctuation at that time. In this business, money was converted into physical goods with a certain amount of physical goods determined as a conversion unit which, for instance was determined as 500 gram of Yuan Feng flour, 500 gram of cornmeal or one Chi (1m equivalent to approximately 3.33 Chi) of cloth. The conversion unit price on the current day was calculated with the average wholesale price of the three physical goods during the past five days. When customers deposited or withdrew money in a bank, the bank should convert the money into RMB based on the conversion unit price of the current day.

On June 10, 1949, Bank of China General Management Department informed branches in liberated areas to launch the goods savings business. This kind of business played an important role in fighting against speculation and stabilizing prices and people's daily life.

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