Fiscal Policy and Paper Money Research Paper

  • Length: 10 pages
  • Sources: 1+
  • Subject: Economics
  • Type: Research Paper
  • Paper: #44400550

Excerpt from Research Paper :

Xian Feng emperor. A national monetary policy relates to issuing paper money. In the case of the emperor, this policy was done incorrectly and the government should not issuing paper money as the sole way to solve financial deficits. What will be posed in this report will be some solutions and comparisons that would helped the country economically during that time period. The relevant time periods for this report shall be during the time of the Xian Feng emperor (1831-1861) and the later part of the Qing era

Xian Feng Emperor & Qing Government.

In general term, the 1700's was a prosperous point in time for the Qing government. Their empire was stable, China's borders were secured and agricultural production was strong enough to keep food shortages at bay and taxes for peasants low. However, during the 19th century, the Qing government was challenged by several threats and problems. These include economic pressures, taxation issues and opium-related wars. The high living standards of the previous century contributed to a sharp increase in population. China's population exceeded 300 million in 1750. Just a century later, it had increased by a third. Monetary inflation and rampant corruption among government officials led to numerous peasant rebellions. When the White Lotus Rebellion happened, the Qing government spent a lot of money on the military to maintain control and impose authority. Chinese imperial fiscals had a 9.2 million deficit on the eve of Xian Feng's accession in March 1850. The Xian Feng Emperor basically has to accept the issuing paper money. This was because of the emergency situation and copper shortage that was caused by the Tai Ping rebellion. Given that, Xian Feng wants to address the financial deficits. Even so, Xian Feng has a poor plan and shoddy preparation when it came to issuing paper money (Von Glahn) (Horesh).

Government Monetary Policy is Important

Richard Von Glahn writes that "money has three functional roles, the first is exchange, and measure of value the third is store of value." The Qing government failed to be properly aware of the function of money. For example, Wang Mao Yin was one of the financial officers and his primary goal was to have "no pressure on the residents and it also beneficial to the Government." He wants to issue money in a way that prevents inflation. However, the Qing Government does not allow the trade between paper money and silver. As a result, the majority of businesses and people choose not to use the paper money. Von Glahn goes on to say "in the economists' view only something that fulfills all three of these functions can be considered true money." In this case, the Qing government failed to issue "true" paper money. The Qing government did not recognize the link between metallic and paper money. Indeed, if the amount of issuing paper money does not exceed the liquid currency, even the metallic money is replaced and paper money is not depreciable (Von Glahn) (Horesh).

Von Glahn goes on to state that "metallic money was also virtually imperishable, which enabled it to perform another important function of money: serving as a storage of value." However, the government faced the outflow of silver after the Opium War. The government believed that issuing paper money would address the silver shortage. However, it was a simple fact that the government did not have enough silver on hand as part of their reserves. As such, the larger amount of money is depreciable. For example, currency with intrinsic copper content equivalent to only two copper cash in the original mint would receive a stamped value equivalent to ten. De Bin Ma says "the potential of printed paper to become a monetary instrument of large denomination was a constant lure to any political authority with enough administrative and coercive capacity." Due to being forced to use the paper money, different regions also had to start to issuing paper money. This created a nasty and vicious circle in the market. However, the depreciation ended up being beneficial to the government as this was how the Qing government earned 70% of its wealth. This helped them overcome the financial crisis. In other words, the Qing government were only after their own priorities and goals when it came to issuing paper money. It benefited them even if it did not benefit the people and businesses of the country (Von Glahn) (Horesh).

The Qing government did not accept paper money from taxpayers. If the officers wanted to get money, they would demand the silver money. From the tenth year of the Xian Feng period onward, the support for paper money exceeded those that did not support the paper money. Even so, the Qing government was fully aware that issuing paper money was clearly causing inflation and was causing a drag on economic development and growth. All of this made two general principles of inflation quite obvious. First, when there is government control, this is then deficit and costs can go up. The Qing peoples erred in that they ignored the function of money and this is what led to them foolishly issuing too much paper money. The second economic issue here is that over-issuing paper money leads to inflation. Such a happenstance can help people and even the government in the short-term but it causes problems in the long-term (Von Glahn) (Horesh).

The complex and differing types of paper money that existed led to a reshuffling of the order of currency circulation. Complicating the matter was that foreign countries issued different currencies for the Chinese market. This led to more than one prevailing currency in the Chinese market and this made things even worse since business, government operations and government actions would commonly involve more than one currency. Private businesses in particular made things even more nebulous and complex because they issued their own paper money on top of what was already flowing through the system. This confused the consumer and there was also a large amount of counterfeit money in the system (Von Glahn) (Horesh).

In the end, only the government benefits from the issuing paper money. They use their power to force people to use paper money and the government sets the value of the money, rather than going of off some sort of market price. Wang Liu came up with the conclusion that no matter how the government set the value of the paper money, it would let the money in the circulation. His idea clearly shows they relied on monetary policy that involved the feudal society. Under such a society, monetary ideas are predominated by the government and the local offices. His idea is really miserable and blind. He also claims "money can be issued in an unlimited fashion." Wang Liu is one of the officers who ignore the function of money itself and the significance of the market (Von Glahn) (Horesh).

If one were to compare Wang Liu and Wang Mao Yin, Wang Mao Yin could not have been punished for supporting inconvertible notes because…

Sources Used in Documents:

Works Cited

Horesh, Niv. Chinese Money In Global Context: Historic Junctures Between 600 BCE

& 2012. 1st ed., Stanford University Press, 2013.

Von Glahn, Richard. Fountain Of Fortune. 1st ed., Berkeley, Calif., University Of

California Press, 1996.

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"Fiscal Policy And Paper Money" (2016, November 19) Retrieved August 5, 2020, from
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https://www.paperdue.com/essay/fiscal-policy-and-paper-money-2163116