This paper reconsiders the successful nation-wide implementation of the 1935 fabi (legal tender) currency reform, focusing on the issuing of banknotes by private banks in Tianjin. During the Beijing Government era, the integration of banknotes failed because of two runs on banks that were expected to function as central banks, the Bank of China and the Bank of Communication. As a result, many private banks started to issue their own banknotes. The four biggest banks in north China, known as the Northern Four, established a four banks joint treasury and issued Zhongnan banknotes, in accordance with reserve rules that they had agreed on and that were far more sound than law. Afterward, Zhongnan banknotes became the dominant private banknotes in Tianjin. From 1927 November, the joint treasury voluntarily began to take in security reserves, which boosted the volume of banknotes in Shanghai. As a result, Shanghai came to play a crucial role in leading the fabi reform. This analysis of the joint treasury shows that in addition to such external elements as political integration, financial policy and the impact of the U.S. silver purchase act, domestic developments also played a crucial role in the success of the nation-wide fabi reform.
View full abstract