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Bank of China Fought againt the Foreign Exchange Transfer Order of Nanjing Government but Failed(1947 - 1948)


 

On February 26, 1947, The Ministry of Finance sent a message to Bank of China head office via postal telegram, "Chairman Chiang Kai-Shek instructed in allocution that all resource committees, Bank of China, Bank of Communication and Farmers Bank of China as well as the two post offices should transfer their foreign exchange to the Central Bank. ..." It was the beginning of the supreme Kuomintang authority grabbing foreign exchange funds from banks.

After China's victory of the Anti-Japanese War, the Central Bank's foreign currency reserve plus gold stock amounted to USD 1.2 billion (almost USD 900 million and 6 million Liang of gold), once planned as the provision for legal tender issuance, was embezzled by Chiang Kai-Shek to finance the civil war. The financial deficit was shocking with huge military expenditure - the Central Bank had sold USD 455 million during the eight months since the foreign exchange market was opened in March 1946 to the re-limitation of foreign exchange in November, consuming more than half of foreign currency reserve; 3.51 million Liang of gold was sold, which accounted for 60% of the gold reserve. Facing such economic chaos, the government promulgated an emergency decree in February 1947 to freeze commodity prices and wages, as well as forbid public trade of gold. To enrich government treasury, Chiang Kai-Shek adopted high-pressure political measures in the form of "allocution" to transfer all the foreign exchange funds from all major banks to the Central Bank.

Upon receiving the postal telegram from the Ministry of Finance on transfer of foreign exchange, Bank of China wrote to the Ministry of Finance on March 19 stating the difficulties in foreign exchange transfer.

I. As a specialized international trade bank specially authorized by the government, Bank of China needed foreign exchange for turnover.

II. Bank of China needed foreign exchange to maintain its creditability in providing guarantee for overseas borrowings, advance and foreign debts of the government.

III. The Central Bank, after receiving the converged foreign exchange, would deposit it at foreign banks, which could affect the country's foreign exchange security and flexible application of foreign exchange.

Bank of China general manager Song Hanzhang also negotiated with the Central Bank in person on postponement and reduction of foreign exchange transfer. Based on the remarks of these banks, the Ministry of Finance proposed to Chiang Kai-Shek, "The foreign exchange reserve of the three banks and two bureaus should be transferred to the Central Bank, which will re-deposit the foreign exchange to their overseas branches." The proposal was approved by Chiang Kai-Shek. Then the Central Bank convened a meeting attended by representatives of the three banks and two post offices with regard to the Ministry of Finance proposal and Chiang Kai-Shek's instruction, and afterwards notified concrete measures to the three banks: Foreign exchange was owned by the Central Bank and all banks and post offices should transfer their foreign exchange reserves to the Central Bank; any bank or post office in need of foreign exchange may overdraft from the Central Bank, provided that the overdraft amount does not exceed 70% of the transferred amount.

After receiving the notice, Bank of China sent another letter to the Central Bank about the difficulties in implementation: Foreign exchange transfer could not be completed as required because of the fact that foreign branches needed foreign exchange at hand for deposit payment and the restraints of local government ordinance in other countries. According to the actual situation, Bank of China worked out a flexible method under which Bank of China's domestic branches can resume collection and payment of foreign exchange with deposit accounts of overseas affiliated banks and agency banks.

On August 30, 1947, Bank of China convened the 1374th Managing Directors Meeting. Under the pressure of government, the meeting worked out a resolution that "all foreign exchange of the bank is transferred to the Central Bank according to the order, and all transfer procedures shall be carried out after Bank of China's negotiation with the Central Bank".

The financial minister Yu Hongjun submitted Chiang Kai-Shek a "List of Foreign Exchange Amounts Transferred" from the three banks and two post offices to the Central Bank. As shown on the list, Bank of China had transferred USD 40.88 million and GBP 5.65 million, which accounted for 73.71% and 73.24 % respectively of the total amounts transferred. But actually, Bank of China did not immediately carry out the transferring procedures.

On September 6, 1948, on the occasion of the Extended Week in Commemoration of Sun Yat-sen, Chiang Kai-Shek compelled in his "extemporaneous address" that all commercial banks should declare and transfer the foreign exchange before the specified deadline threatening that "...for any one who play the hypocrite with every semblance of sincerity, wait and see, delay, or make false account, or do not report the factual deposit, the government will take further measures by exerting severe punishment in accordance with law". Under this circumstance, Bank of China held the 1400th Managing Directors Meeting, agreeing that its own foreign exchange of USD 50.58 million and GBP 5.54 million would be transferred to the Central Bank, while USD 28 million and GBP 3.06 million would be returned to Bank of China for its turnover.

As a specialized international trade bank, Bank of China suffered from impact of business due to foreign exchange transfer. To protect its business growth and interest, it tried many times to explain the difficulties in foreign exchange transfer from different angles, but under the government pressure, it finally yielded and handed its foreign exchange reserve to the Central Bank controlled by Chiang Kai-Shek.

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