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An Important Turning Point for Bank of China - Restructured as an International Exchange Bank (1928)


 

Bank of China used to perform the function of a central bank for nearly 17 years since its foundation, winning a good reputation and a solid foundation for further development.

On April 18, 1927, Chiang Kai-shek founded another Kuomintang Central Committee and a Nationalist Government in Nanjing rivaling the Wuhan Government. To strengthen domination of finance and economy, the Nanjing Government was in a hurry to set up a central bank. But since the banknote unrest occurring in Guangzhou and Hankou, the central bank's credibility was already tarnished, making it especially hard for the Nanjing Government to found a new and effective central bank. As Bank of China was time-honored and deeply trusted by the people, T.V. Soong, then financial minister, planned to change Bank of China into the central bank of the Nanjing Government on the condition that it was renamed as the Central Bank with the government being the controlling shareholder. Zhang Jia'ao, then vice president of Bank of China, believed that change of bank name would not only weaken people's trust, but also make no difference to its over ten years of excessively close relationship with the government, thus destroying the foundation of Bank of China. Therefore, Zhang declined the government's advice. In view of the relatively weak foundation of the government and the great influence of Bank of China, T.V. Soong had to agree with Zhang Jia'ao. He ordered to set up a separate central bank as the highest financial authority and reorganize Bank of China into a government-licensed international exchange bank with the right of currency issuance.

On October 26, 1928, the Nanjing Nationalist Government issued the Bank of China Statute, which included 24 items, clearly stating that Bank of China was an international exchange bank under the government authorization. That was a historical turning point for Bank of China. In line with the Statute, Bank of China made relevant revisions to its Regulation and the Articles of Association.

Zhang Jia'ao, as general manager of Bank of China, was certain that the reorganization would promote Bank of China's development and wrote down a note: "From resisting Yuan Shikai's decree on cease of banknote redemption to restructuring into an authorized international exchange bank, Bank of China, with 16 years of unremitting efforts expanding its domestic business and defending itself against foreign invaders, has finally safeguarded its independence. During this period, Bank of China endeavored diligently for fear that there would be any neglect of duty. It's believed by the public that Bank of China is among the three most established authorities along with the Customs Office and the Post Administration, but it is actually the most successful Chinese private joint-stock company with the largest capital base. In the financial market of Shanghai, Bank of China is able to compete with foreign-funded banks. Talking about the development of Bank of China, we may recall the political evolution since the founding of the Republic of China. If there had been a united and stable government supported by a complete and sound legal system and public authorities without frequent replacements of officials, Chinese private enterprises would have been free enough to develop. Had they developed in line with the normal laws, how couldn't we catch up with or even surpass the Western world?"

To develop Bank of China into a major modern international bank to compete with foreign-funded banks, Zhang decided to reform and completed an investigation trip abroad from May 27, 1929 to March 15, 1930. During the ten months, Zhang visited 18 countries including the former Soviet Union, France, Germany, UK and the U.S., bringing a significant influence on Bank of China's future. Bank of China London Agency formally opened on November 4, 1929 only after three months of preparation. It was a significant start for Chinese financial institutions to enter the world financial center. During the trip, Zhang also had an agreement with 11 correspondent banks in Europe and Canada and 17 agency banks in UK and the U.S. All those banks were the first-class local banks and trust companies, forming a basic global network for Bank of China's foreign exchange business. Four British and German banking experts were hired during Zhang's trip to assist with the reform and other relevant work of Bank of China, which showed sound effects.

After the reorganization, a shift appeared in Bank of China's management concept and business focus. As an international exchange bank, it was mainly engaged in foreign exchange business in a bid to set up more branches abroad and develop agency bank relationship with more foreign banks. The operational policy of the bank was designed to serve the public, improve people's livelihood, shift its focus from government authorities to industrial and commercial enterprises, obtain more deposits and support industrial and commercial entities with low-interest loans to promote production and development. The transition of policies had a critical influence on its development in the following years.


An advertisement of Bank of China after becoming an authorized international exchange bank

Bank of China reformed its organizational structure and management system by adjusting its head office structure, eliminating the positions of Chief Secretary of Cash and Chief Secretary of Coupons, and setting up an investigation department to strengthen research and survey. At that time, There were 38 top managers in total, of which over 20 held a bachelor's degree granted by the U.S., UK, Japan, Switzerland and other countries, seven had a domestic college diploma, two were foreign experts and the remaining nine people were professionals with long years of experience in the financial industry.

During the period of service as a government-authorized international exchange bank, Bank of China saw rapid development of business and became the footstone of the national financial industry and the most competitive bank in China. In 1936, total assets of Bank of China hit 1.719 billion yuan and the banknote circulation was 465 million yuan, both more than doubled against the figures in 1927. In 1939, its deposits accounted for 57% of the total of the Central Bank, Bank of China, Bank of Communications and Farmers Bank of China, with its loan balance making up 38% of the total.

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