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Cash Pooling by Wuhan Nationalist Government Causing Heavy Losses to Bank of China Hankou Branch (1927)


 

The three townships of Wuhan City, namely Wuchang, Hanyang and Hankou, boasting convenient transportation and thriving commerce, attracted many foreign and domestic banks to set branches. During the era of Beiyang Government when wars were frequent, Wuhan as the focus of warlord competition, saw its financial sector suffer from the chaos caused by series of bank runs and blackmails by armies.

Going through rounds of bank runs, Bank of China prepared well and found its way to get out of dangerous situations. Facing blackmails by armies, it managed to mediate to minimize losses. But under the severe influence of the cash concentration event by the Wuhan Nationalist Government in 1927, Bank of China Hankou Branch suffered from heavy losses and had to suspend business.

After the April 12 Anti-revolutionary Coup in 1927, the Kuomintang Central Executive Committee and Nationalist Government in Wuhan denounced Chiang Kai-shek, expelled him from the party membership and removed all his posts, thus resulting in the split of Kuomintang into Nanjing and Wuhan sides as Chiang Kai-shek formed a new government in Nanjing. As the bourgeoisies in Wuhan had no confidence in their government, they transferred large amounts of assets to Shanghai and other places, making the funds in Wuhan market decline. Wang Jingwei addressed, "...Ready cash should be deposited in banks as reserves to maintain the credit of banknotes..." Then the Wuhan Government issued the Cash Concentration Statute on April 17, 1927 as follows:

"At the critical moment of the Northern Expedition, it is the first and foremost task to strengthen finance... That's the reason for issuing the Cash Concentration Statute. From now on, only the banknotes issued by the Central Bank, Bank of China and Bank of Communications are effective to pay state tax and circulate on the market while silver dollars and ingots are forbidden from export. Operation of each bank will resume as normal but with no transaction in cash. People must absolutely abide by the Statute and should not bother each other with the matter or make rumors to breach it. Anyone who refuses to accept the banknotes issued by the said three banks, violates the government's economic policies, spreads rumors or disturbs the financial market will be strictly punished..."

At the same time when the Statute was issued, the government sealed up banks' cash reserves of over 4 million yuan, with the reserves of Bank of China accounting for 1 million. Furthermore, the government forced the Central Bank, Bank of China and Bank of Communications to put their banknotes into circulation. Bank of China Hankou Branch, as a regional branch that held banknotes worth of over 20 million yuan plus over 10 million yuan in circulation, was forced to circulate all its banknotes on the market. The way of the government to pool cash had no difference with the announcement of a financial blockade, which actually meant that the exchange certificates issued by the banks were irredeemable paper money, resulting in a severe financial chaos. The local goods price surged by 50% within a week, stores went out of business, and people's daily life was badly affected. Financial institutions in other places announced to cut off their business relation with those in Wuhan. The credit organizations in the three counties and those nearby were completely destroyed with inestimable losses.

On September 22, 1927, the Wuhan Nationalist Government collapsed and united with the government in Nanjing, and the Cash Concentration Statute automatically became invalid. To maintain the currency face value, the authorities started redemption of banknotes issued by the Central Bank, Bank of China and Bank of Communications with lower price. In 1928, the Ministry of Finance issued long-term government bonds of 45 million yuan in exchange of Wuhan banknotes, putting an end to Wuhan banknote issue.

Bank of China Hankou Branch was the largest victim of the implementation of Wuhan's cash concentration. The branch, as the third largest regional bank at that time, had a broad network and large volume of business. Its banknotes worth of over 30 million yuan was forced to be withdrawn by the government, which caused severe loss and business suspension. In 1928, its rectification continued with onlyshort-term deposit and remittance services provided. In July 1929, the branch was changed into "Bank of China Hankou Old Account Clearing Office". It was in January 1932 that it resumed operation as Bank of China Hankou Branch after being renamed from Bank of China Shanghai's Banknote Service in Wuhan.

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