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Bank of China as the Central Bank of Nanjing Provisional Government and the Northern Warlord Government (1912 - 1928)


 

After the promulgation of the Regulation of the Bank of China, the Ministry of Finance sent a formal consultation on May 23, 1913 to the Ministry of Foreign Affairs, urging the latter to convey to all foreign banks that "Bank of China is the Central Bank of the Republic of China". During the period from 1912 to 1928, Bank of China successively acted as the Central Bank of the Nanjing Provisional Government and the Northern Warlord Government (Beiyang Government).

China at that time was an independent country, but its fiscal and financial power was actually controlled by imperialistic foreign banks. Furthermore, due to government corruption and tangled fighting among warlords, Bank of China was in a tough situation. However, it never ceased to play a positive role as the central bank and endeavor to grow to compete with foreign banks.

I. Treasury management agency. As the central bank, Bank of China was commissioned by the government to manage the state treasury.

A. Redemption of military notes and bills. At that time, enormous expenditure was incurred in the frequent warfare, resulting in financial difficulties and issuance of large amount of military notes and bills. As the Nanjing Provisional Government had issued a total amount of 5 million yuan of such banknotes for military use, Bank of China set up many redemption offices for such notes and achieved significant effect. On March 4, 1913, in its reply to the Ministry of Finance, Bank of China stated that 4.991 million yuan's military banknotes had been called in, hence the end of military banknote redemption.

B. Tax collection agency. In April 1913, the Ministry of Finance promulgated the state treasury charter and assigned Bank of China to manage the state treasury and the local treasuries, hoping to make them a single unified treasury. Bank of China actively prepared to take over provincial treasuries by establishing local branches or commissioning them to the government banks. During the take-over process, Bank of China encountered many problems, for quite a number of local treasuries delayed the takeover, requiring Bank of China to promise to offer advances when those local authorities face financial hardship. After various efforts, by the end of 1915, Bank of China had taken over 21 customs houses, 38 salt tax institutions and 15 provincial treasuries, with the tax collected via the bank taking up more than 50% of the national tax revenue. Despite the failure of recovering its advance of about 6 million to 7 million yuan, Bank of China set up a large number of branches as a result of the takeover, expanding its deposits, loan and remittance business.

C. Management of repayment of foreign debts. While recognizing the large amount of foreign debts borrowed by the Qing Government, the Beiyang Government incurred massive new foreign debts - 387 loans with an approximate amount of 1.28 billion yuan during only 16 years. As the central bank, Bank of China undertook the task to pay principal and interest of foreign debts. Moreover, due to insufficient governmental appropriations, the bank had to provide advances to the government, suffering from quite a lot of losses.

II. Assistance to the government in government bond affairs. Entrusted by the government, Bank of China undertook government bond issuance and payment. From 1912 to 1926, the Beiyang Government officially issued 27 types of bonds with a total amount of 610 million yuan, from which Bank of China benefited from the discounts and commission fee of bond sales as the principal fundraising manager and underwriter.


In 1913, the Chinese government issued government bonds abroad via Bank of China.

III. Currency issuance. As the central bank, Bank of China was the chief enforcer of the Regulations of National Currency promulgated on February 8, 1914. All branches of Bank of China and Bank of Communications recalled old silver dollars for mintage of new silver coins portraying Yuan Shikai. Later, raw material of the coin was changed into raw silver, gradually making Yuan Shikai silver coin the main circulating currency with increasing production which was estimated to exceed 590 million yuan. That release of new currency might be the only success of silver coin in the Chinese mintage history.

The inferior credit of Chinese banknotes compared to foreign ones and lack of a unified national treasury system made it impossible to handle all treasury payments with the Bank of China banknote. All these brought great difficulties to Bank of China to issue banknotes. Although from 1912 to the end of 1915, all value of the banknotes equivalent of silver dollars issued by Bank of China surged from 1.06 million yuan to 38.44 million yuan, or 38 times higher, it could hardly meet the market demand. In 1915, the government announced the Regulations on Ban of Banknotes, which banned banknote issue by all banks. The already issued banknotes should be recalled within a specified deadline. Banks formerly with the right of banknote issuance should take exchange certificate from Bank of China. Therefore, Bank of China Shanghai Branch created a hidden marking system for the bank exchange certificate take-up. The so-called hidden marking meant that the issuing bank could add one secret mark on the banknote or bill, representing respective name of places and institutions that took the notes, so the relevant professionals could easily tell which bank ever took or recovered such notes or bills. This system was unique in the banknote issuance history of Bank of China. The effect of hidden marks was significant as the number of the original issuance banks and recipient banks coming to Bank of China for bank exchange certificates gradually increased.

During the Beiyang Government period, the amount of exchange certificates issued by Bank of China increased in a straight line, with its value totaling 1.06 million yuan in 1912 and increasing by over 150 times to 159 million yuan in 1927. That played a significant role in establishing a stable financial order. In addition, during this period, Bank of China as the central bank faced a severe problem of financial advances. By the end of 1925, its advances had amounted to 23.73 million yuan, accounting for more than 78% of the total bank advances of all banks. This was a heavy burden imposed on Bank of China in the way of its development.

During the 16 years of function of central bank, Bank of China experienced ups and downs. By the end of 1928, a total amount of 295 million yuan of currency (exclusive of the inconvertible banknotes) had been issued by all issuing banks in China, with Bank of China's portion accounting for 58% of the total. The total amount of deposit of all banks was 983 million yuan, with Bank of China accounting for 39%. It became the largest and most competitive domestic bank with the best creditability at that time, which laid a solid foundation for its modernization and internationalization.


Bank of China total asset growth chart, 1913 -1927 (unit: yuan)

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