Corruption, black market and difficulty of managing currency in imperial China
As a Chinese history buff, the period that most fascinates me is the rule of Emperor Yongzheng (1722 – 1735). He was a very hardworking administrator who arguably died of overwork. During his relatively short reign, he reformed land and tax policies so that the wealth of the imperial treasury became unprecedented – 60 million taels in 1730. His achievement laid the groundwork for the long reign of his son and better-known Emperor Qianlong. One of the best ways to acquaint yourself with Yongzheng’s rule is to watch the 44-part Chinese drama ‘Yongzheng Dynasty’ (雍正皇朝) made in 1997.
But money is what we are most interested in and this 7-minute segment between 10:50 – 18:12 is what I want to highlight. When a new emperor ascends the throne, the Ministry of Finance (户部) mints new coins to mark the new reign. But as we learn from this video, it is a great time for corrupted officials to make some money at the expense of the nation. (I don’t want to do a transcript or to crop the video for copyright reasons. For readers’ sake, this video shows the Emperor with his cabinet. The mandarin on his knees is a 6th ranked secretary or scribe who confronts his superiors in the Ministry and is brought in front of the emperor for creating a din.)
Use of copper in imperial China
- Coins are minted from copper and lead in a 50:50 alloy.
- Copper is harder than lead but more expensive.
- Using copper to mint coins is very costly but necessary because high-lead-low-copper coins become worn out easily. A worn out coin does not reflect well on a new reign (新朝气象).
- 50 percent copper is the lowest acceptable amount for minting.
- Copper is highly valued because it is used to make bronze vessels employ in rituals as well as farming tools.
Role of silver and minted coins in taxation
- Coins were minted so that the people need not resort to barter trade.
- Taxes however are collected in silver only so people need to use change silver for coins for trade but change coins back to silver to pay taxes.
- The government decreed the exchange rate 1 tael of silver for 2000 coins.
- Market rate on the other hand was 1 tael of silver for 800 coins.
Now this is where the story became very interesting. Because it reveals how Prince Lian (廉亲王), the Minister of Finance ganged up with his cronies to con the emperor.
How the scheme goes
At 50:50 copper to lead, the treasury already makes a loss to make new coins. The Minister of Finance decides to mint new coins at 60 copper to 40 lead instead. His reason was that this was done for the first batch only to show how progressive the new reign will be. But it is a ploy to make money for himself and his syndicate.
Yongzheng tong bao – minted coin used during Yongzheng reign from 1722-1735
Round up the coins to to melt them
In step 1 of their scheme, the new coins are promptly rounded by corrupted officials and merchants. They use 1 tael of silver to buy 2000 coins. The ‘high-copper’ coin is melted down for its copper which is recast into bronze and sold for high profits (i.e. more than 1 tael of silver). So in fact the imperial treasury ‘subsidizes’ the corrupt officials to run their ‘low-cost’ business. Inevitably, this also leads to shortage of coins and proliferation of barter.
Tax the tax
Step 2 of scheme. When the taxman knocks, people do not have silver to pay their taxes with. With what limited coins they can get, they hand in these coins to officials for the purpose of paying tax at the official rate of 2000 coins to 1 tael of silver. These officials then exchange these coins in the market at a rate of 800 coins to 1 silver. Like magic, ’1 tael’ of silver becomes 2.5 taels. The officials give 1 tael to the treasury for tax and keeps 1.5 for himself.
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Soh Tiong Hum is Director of TerraSeeds Market Technician Pte Ltd. TerraSeeds is a trading educator in Singapore since 2005.
Soh Tiong Hum is a member and regular speaker at Technical Analysts Society Singapore events and has a bi-monthly lunch time event at IG Singapore on forex and stock markets. He is an avid blogger on technical analysis topics; his Twitter account @sohtionghum
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