Chapter 110: Issuance Methods

The Senate originally had an idea to use the “Silver Reserve Notes” as coupons for purchasing industrial goods, meaning that to buy goods produced by the Senate, one had to use the new currency. However, the people in the finance department believed that this would not be very meaningful, because the industrial goods produced by the Senate still did not have a large enough coverage of the population or a wide enough range of use.

The opinion of the finance department was that the Senate must control the channels for the three basic consumer goods for residents: “rice,” “salt,” and “cloth,” to ensure that the new currency could be used to purchase these three necessities at any time.

As long as paper currency could be used to purchase daily necessities, whether it could be exchanged for silver dollars was no longer the key issue. Otherwise, even if it could be guaranteed that every silver reserve note in circulation had a silver dollar in the bank as a reserve, it would be of no use.

The reason why the Renminbi was able to stand firm in the chaotic currency market back then was not only because of the administrative power to force the withdrawal of silver dollars, but also because the government was able to control the supply channels of “two whites and one black” (rice, cotton yarn, and coal), thus maintaining the basic credit of the paper currency.

The situation faced by the Ministry of Finance was different from that in 1949, but abolishing the tael and adopting the yuan, and the free exchange of silver and banknotes, was still a momentous event for the financial market. To ensure that the new currency could be accepted and circulated, no amount of financial theory could overcome the most basic principle: to make the money “valuable.”

Gold and silver are not inherently “valuable.” In places where gold and silver are abundant but goods are scarce, they also suffer from huge depreciation. There was a living example of this in 17th-century China: the Manchu Qing.

The Manchu Qing, through multiple incursions into the Central Plains, had acquired an astronomical amount of wealth relative to its land area and population. But the pouring of huge amounts of gold and silver treasures onto this small, cold, and barren land only brought about vicious inflation. The result of the Ming Dynasty’s trade embargo was that the Manchu Qing could only conduct almost forced trade with the equally barren and hostile Korea. The goods obtained from the Shanxi merchants were a drop in the bucket.

The reports written by Huang Hua, who was sent to Shengjing for trade, were full of words like “all goods are expensive” and “goods are scarce.” The lives of middle and lower-ranking officials were difficult, and there were even cases of officials being punished for being forced to sell imperial gifts. The Manchu Qing constantly requested the Senate to transport grain, and the offered price was as high as forty taels of silver per shi.

“So, how many silver coins we prepare is not the key issue. Although our new currency is no longer on a rice standard, the value of the currency still needs to be backed by these basic commodities,” Chen Ce concluded after explaining the new currency issuance plan.

Liu Xiang said, “I’m not questioning the policy of the Ministry of Finance. But… but, the common people have no good feelings about paper currency. If we now use paper currency to pay salaries and buy things, I’m afraid, I’m afraid… it won’t be that easy. The market acceptance will not be high. We can’t engage in forced trade, can we? There has to be a gradual process.”

Chen Ce said, “Of course. Otherwise, why would the Ministry of Finance allocate an additional two hundred thousand yuan in silver coins to you? It’s to reduce the resistance to circulation.”

Liu Xiang thought to himself, this is clearly the spoils of war confiscated in Guangzhou! The Planning and Development Council has turned the official warehouses of one prefecture, two counties, and the Guangdong Provincial Administration Commission upside down, getting over two hundred thousand taels of treasury silver for the national treasury. Isn’t it only right and proper to allocate two hundred thousand yuan to Guangzhou now? Even if there are losses from miscellaneous silver, you guys have also skimmed off a lot!

But he had no say in how the spoils of war were disposed of. He could only express his sincere gratitude. “I need your support. The amount of confiscated silver here will certainly not be small. I only ask that the Ministry of Finance take into account our special situation as a new currency pilot area.”

Chen Ce said, “You can rest assured. The new currency system is not just a matter for Guangzhou, but a matter that concerns the entire cause of the Senate.”

Since the Ministry of Finance had already set the tone, Liu Xiang could only “resolutely implement” it. The meeting tonight was actually to arrange work according to the issuance plan of the Ministry of Finance.

Zheng Shangjie said, “I have a question. If the new currency still needs to be backed by rice, does that mean we still have to stipulate how much rice one silver dollar can buy?” Zheng Shangjie hesitated. “It’s like a de facto rice standard.”

“No, Director Zheng, your concept is not a rice standard, but a price control policy,” Chen Ce said. “The prices of rice, salt, and cloth in the market will be determined by the market. Fluctuations within a certain range are allowed. What we need to do is to regulate prices through market means and maintain price stability.”

Zheng Shangjie suddenly realized the amount of work this would entail. She exclaimed, “In that case, do we have to control all the rice shops and cloth shops in the city, or are we preparing to open state-owned stores on a large scale?”

“No, it’s not that exaggerated,” Zhang Yikun said. “We just need to control the wholesale channels.”

Lin Baiguang nodded. “That’s right. The daily necessities in Guangzhou actually rely on supplies from other places. Controlling the external wholesale channels is tantamount to controlling the market.”

Chen Ce asked, “Is this easy to do?”

Lin Baiguang smiled faintly and said, “Nothing that involves vested interest groups is easy to do. The good thing is that we are a new regime and outsiders, without the thousands of threads of interest entanglements.”

The interest group Lin Baiguang was talking about was the yá háng (official brokers).

Guangzhou’s grain was not self-sufficient and required imports from other places. But trade in the Ming Dynasty was not free trade. Traveling merchants could not freely sell their goods in the city; they had to go through yá shāng (official brokers) who held yá tiē (broker licenses). The yá háng were originally intermediaries, but the government, by issuing yá tiē, had in effect allowed them to monopolize the trade in certain industries.

Since the yá háng were local powers and had the “exclusive monopoly” granted by the government, they naturally exploited the traveling merchants to the fullest extent. The yá háng had no capital and needed no capital. The yá shāng forced the traveling merchants to sell their goods on credit to the yá háng, which then sold them wholesale. In this process, the traveling merchants often did not receive payment for their goods or faced long delays. Even if they were paid on time, it was often at a large discount. The Thirteen Factories system in Guangzhou, which the British so detested and forced the Qing government to abolish after the Opium War, was actually a type of yá háng.

The grain trade in Guangzhou was monopolized by the yá háng. Lin Baiguang was very clear about this.

“How long will it take to get rid of the yá háng?”

“Not long,” Lin Baiguang smiled. “I think their calling cards have been on Mayor Liu’s desk for a long time now.”

“I’m waiting for the Ministry of Justice to send me judges to set up a provisional court,” Liu Xiang said. “Always organizing military tribunals is, first, not regular, and second, many people are jealous. They have prepared many high-sounding hats for me, which I can’t afford to wear.”

Zheng Shangjie knew that there was a murderous intent hidden in these few jokes. The owners of the yá háng that had monopolized Guangzhou’s trade for hundreds of years would be ruined and their families destroyed in an instant!

She still remembered that a few days ago, the owner of a yá háng had gone through her personal maid—no, life secretary—to present her with a lavish gift, humbly begging to see “Lord Liu.” He had also hinted that the yá háng would “do their utmost to serve” both “publicly and privately,” the meaning of which was self-evident. She never thought that they would be discussing “slaughtering the pig” here in such a lighthearted manner!

She suddenly felt a little scared. These men, although of different heights and builds, were essentially no different from her own husband. They were all ordinary commoners. But now, their conversation, though still in those plain and unremarkable words, carried a sinister and cruel air. Even their smiles seemed to hide a ferocious grin.

“Let’s summarize,” Chen Ce said. “To get the new currency circulating, we need police…”

“We have that. They will be on duty in large numbers soon,” Liu Xiang said.

“The tax bureau.”

“We’ll have to wait for the General Administration of Taxation to send someone. I don’t even know who’s coming yet.”

“Why the tax bureau?” Zheng Shangjie asked. She had lived in the United States for many years and would involuntarily shiver at the mention of the tax bureau.

Liu Xiang explained, “The credit of a currency is largely reflected in whether the state recognizes its value. Taxation is the best manifestation of this. Even if you issue bamboo or wood chips, as long as you accept them for tax payments, the common people will recognize their value. The reason the Great Ming’s treasure notes failed was because the emperor’s wishful thinking was too good: when he spent them, he treated them as real gold and silver, but when he collected taxes, he said they were just waste paper—only a few customs houses in the whole country recognized them as money.”

“The court.”

“It will be in place soon.”

“The distribution of rice, salt, and cloth.”

Liu Xiang said, “Our other commercial channels in Guangzhou are all for high-end luxury goods. Although Zi Cheng Ji also wholesales daily industrial goods, they don’t deal in rice or salt. They do distribute cloth. Run Shi Tang sells medicine, which is not a daily necessity either.”

“The salt issue is a bit complicated,” Lin Baiguang said. “That’s the business of the Salt Monopoly Bureau.”

“The salt problem is not a big one. The Salt Monopoly Bureau just needs to set up a wholesale outlet to basically solve it. As for grain, we need a dedicated grain depot to serve as the general wholesale for grain in Guangzhou,” Zheng Shangjie said. “We can have the Guangzhou branch of Da Chang do it.”

In the past, Da Chang’s branch in Guangzhou was not for the grain trade. It was essentially a front for the tax authorities to collect the “reasonable burden” in the Pearl River Delta. The grain collected was mostly shipped to Hainan and Taiwan and rarely sold locally. However, because of this history, the brand, warehousing, and personnel were all readily available, and it would not be difficult to directly transform it into a grain wholesale enterprise.

“Da Chang’s role as a local tax bureau can be abolished. We don’t need this front anymore. The tax functions and personnel can be transferred to the tax bureau. Da Chang will be transformed into a state-owned commercial enterprise in the future. Besides Da Chang, we can also have people from the mountain and sea routes come in and open shops,” Zheng Shangjie was eager to make a big splash and had long been planning to expand her power. “Wan You deals in miscellaneous goods from the north and south. They have a wide variety of goods and can serve as a channel for currency recovery.”

Chen Ce said, “That should be about it. Let me talk about the specific issuance measures.”

He took out a piece of paper from his briefcase and explained it item by item.