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"One Hundred Yuan for A Grain" - Grave Impact of Galloping Inflation (1946 - 1949)


 

Between June 1946 and May 1949, domestic commodity price increased by 36 trillion times and food price increased by 47 trillion times compared with those of the prewar period (June, 1937), which were 248 times and 324 times higher respectively than the multiples of additional currency issuance. On May 21, 1949, The rice price in Shanghai was Jin Yuan Quan (Chinese bills issued by the Kuomintang government in 1948) 440 million yuan per Dan (a unit of dry measure for grain equal to 100 liters), which meant a single grain cost Jin Yuan Quan 130 yuan or more on the basis of 3.2 million grains per Dan. "100 yuan for a grain" was the true portrayal of the galloping inflation and frenzied price rise during that period.


After currency devaluation, people became helpless with piles of banknotes

Galloping inflation and currency collapse caused a lot of problems to the operation and management of Bank of China.

I. Influence on capital

Jin Yuan Quan was issued during the currency reform in August 1948, after which Bank of China's capital of 60 million yuan were converted to only Jin Yuan Quan 20 yuan at the ratio of 3 million:1, which could not represent the actual capital of Bank of China. With regard to this issue, board of managing directors of Bank of China made a resolution that of all exchange surplus, securities surplus and reserves drawn over the years amounting to over Jin Yuan Quan 308 million yuan, Jin Yuan Quan 60 million yuan should be allocated for capital appreciation by share issuance via equal division. Given the 600,000 shares with face value of Jin Yuan Quan 100 yuan per share, the total sum of Bank of China's capital was determined to be Jin Yuan Quan 60 million yuan.

II. Claims of depositors for prewar deposits

Many depositors failed to withdraw their deposits due to the war. After the victory of Anti-Japanese War when currency devaluation lasted due to inflation, depositors suffered from great loss, thus requiring banks to pay their deposits back and compensate for the loss. However, banks considered that they should not be liable for the loss caused by the inflation.

On December 25, 1947, the government published Regulations on Settlement of Prewar Deposits and Loans, which would allow certain compensation for the prewar deposits. However, the compensation rate was far below the actual inflation rate, which caused great dissatisfactions to customers, especially to overseas Chinese. The following two examples demonstrated severe losses of customers' deposits during that period. Six depositors, including Lin Qingying, had 22 time deposits amounting to Silver Dollar 13.58 million yuan before the Anti-Japanese War, which could only be converted to Jin Yuan Quan 700 yuan after 20 years at the ratio of three million to one according to the settlement regulations. The returned overseas Chinese Mai Jiugen remitted USD 1,200 (equivalent to legal tender 1.44 million yuan) to his bank account in China in April 1946 for his patriotic enthusiasm, but the deposit was converted to only Jin Yuan Quan 0.48 yuan at the time of withdrawal in 1948.

According to the statistics of Bank of China Fuzhou Branch as of December 1941, the total prewar deposit due amounted to legal tender 95 billion yuan, from which it can be seen how big the total amount due by the whole bank was.

III. Serious shortage of banknotes and flooding receipts

As the price increase rate greatly exceeded the growth rate of currency circulation after galloping inflation, it was hard for banks to cope with the withdrawal. Other branches of Bank of China turned to Shanghai Branch for cash, but even its own demand was unsatisfied with the cash received from the central bank. These demonstrated the seriousness of banknote shortage - soaring prices, cash shortage, more and more checks and notes as transaction token circulating on the market. As per the file of Bank of China Shanghai Branch, Shanghai Clearing House exchanged more than 5.43 million bills in February 1949, which surged to more than 13.62 million in March of the same year, seriously affecting the normal process of clearance.

IV. Silver dollar adopted in some regions bringing troubles to capital payment and collection

In the spring of 1949, Jin Yuan Quan was close to collapse with many regions starting to make payment and collection with Silver Dollar, However, due to the regulatory restriction, it was hard for banks to handle this kind of transactions. Bank of China asked the central bank for instructions without receiving any reply. This seriously affected its payment and collection business.

In that situation, Bank of China was in extraordinary difficulty and disorder when the galloping inflation forced Jin Yuan Quan to the brink of collapse.

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