Chapter 206 - Food Circulation Vouchers

The next agenda item was the question of currency reform. Thanks to the modern internet, this group of modern people from all walks of life almost all had some smattering of economics—and these smatterings came from different economic theories. In the dormitory quarters, future economic structure and monetary policy were the fourth most popular topic among the idle transmigrators, after official ranks, succession, and women. Like the old days on forums, many people debated with various half-baked theories about things they did not really understand, mouths foaming, until fists were about to fly.

But for Cheng Dong, all these theories were meaningless to the Finance and Banking Committee. Anyone who had studied a bit of history knew that ancient Chinese society was fundamentally a natural economy: self-sufficiency was the norm, and commodity exchange was poorly developed.

However, it was not until they came to Linggao in this timeline, actually met the local people, and witnessed the society and commercial environment of the period that the transmigrators realized just how "naturally economic" an era they had entered. Especially in a backward, purely agricultural county like Linggao. Though the late Ming was supposedly the era of capitalist sprouts in China, in Linggao there was no capitalism to speak of—even the simplest commodity exchange was pitifully rare.

The entire county had only fourteen markets, and these fourteen markets were so small they could not compare to the farmers' markets in the residential neighborhoods some of them had known in their previous time. Some markets did not even have buildings—just a patch of mud and a few thatched sheds. In what little market circulation existed, barter predominated. Whether peasants paying rent to landlords or landowners paying grain taxes to the yamen, everything was done in grain. Most peasants and landowners lived self-sufficient lives, with only a very few commodities purchased at market. Even these transactions were often conducted through barter—homespun cloth, mountain specialties, and the like. Even the yamen paid its runners and minor clerks in grain and cloth.

Consequently, in this locality, never mind the "banknotes" seen in movies and television—even silver was rarely seen. The limited currency in circulation consisted mainly of various copper coins. According to Treasury statistics, the coins circulating most commonly on the market included Tang, Song, and Ming dynasty coins. Even Han dynasty wuzhu coins from long ago were in circulation.

This meant a major problem faced the transmigrator regime: a lack of sufficient means of payment. The transmigrators had plenty of silver and gold—whether brought from the original timeline or obtained in this one through selling goods and raiding wealthy households. The Finance and Banking Committee's current direct holdings alone amounted to 120 kilograms of .975-fine silver, plus assorted ingots, cakes, scrap silver, silverware, and silver jewelry totaling over 700 kilograms—equivalent to more than twenty thousand treasury taels in local terms. They also had over twenty thousand foreign silver coins, mainly Spanish reals and pesos. Gold reserves totaled over two hundred taels. Beyond that, there were over five thousand strings of copper cash.

Yet despite this enormous wealth, the transmigrators found it difficult to actually use. Most of their local expenditures were small: paying wages, purchasing raw materials and food. These commercial transactions rarely called for silver—copper cash was actually the most consumed currency. But the transmigrators regarded copper coins as raw metal and wanted to minimize such expenditures.

The result was that the various departments under the Executive Committee devised all sorts of methods for external payments. Wu De had first introduced work-point vouchers for the Labor Corps and the Commune, followed by the more direct rice tickets and salt tickets. Work-point vouchers themselves were essentially a grain-standard currency. Finally, when the Women's Welfare Cooperative opened and introduced the practice of using transmigrators' wage points to purchase goods, the situation became even more complicated.

All this left the Finance Department in a state of chaos. The budgets, payment records, and reimbursement claims submitted by various departments all used different units—"taels," "wen," "jin," "points," and "fen." Factor in the conversions between different values, and Cheng Dong's accountants were nearly driven mad. Therefore, the Finance Department was adamant about unifying the currency. Only with unified currency could a currency exchange and financial system be established.

The Executive Committee's first proposed monetary system was the silver standard, issuing silver dollars worth half a treasury tael each.

The transmigrators had sufficient silver reserves, and these reserves would only grow in the future—issuing silver coins had adequate material backing.

Second, considering the notorious reputation of the Ming dynasty's precious paper money, merchants and common folk would probably dislike paper currency. Promoting its circulation would face great difficulties.

From this perspective, a silver dollar system seemed suitable.

However, others raised different views, arguing that the timing for silver dollars was not ripe.

Linggao's economy was underdeveloped, with small market scale and limited resource production. Even half-treasury-tael silver dollars would have too much purchasing power. After all, the price of rice in Linggao was only about one tael and three mace, meaning half a treasury tael could buy approximately thirty-six kilograms of rice. For small payments, this was still too large. The transmigrator regime would inevitably have to continue issuing subsidiary coinage.

To establish credibility, transmigrator coinage would have to be finely made. But another law of the marketplace was Gresham's Law—bad money drives out good. One could imagine that once the transmigrators released high-quality coins onto the market, the traditional Chinese habit of hoarding gold, silver, and even quality copper coins would swallow these coins like a black hole. Not only would they fail to dominate the market, they might well be overwhelmed by inferior coins flooding in from surrounding areas—after all, the transmigrators controlled only tiny Linggao.

After comprehensive consideration, the Executive Committee finally decided to issue grain-backed notes in their territory. This paper currency was named "Linggao Food Circulation Vouchers." The reason for not using names like "tongbao" or similar was purely to avoid provoking the authorities. Token vouchers and monetary tallies had long been issued by Chinese merchants independently, with the government rarely interfering.

The form used "yuan" as the unit, to avoid confusion with old units like "wen," "tael," and "mace." The basic unit of Linggao Circulation Vouchers was the yuan, with each yuan equivalent to 500 grams of rice. Below the yuan was the "fen," with one yuan equaling one hundred fen.

As long as the transmigrator regime held sufficient grain, this paper currency's creditworthiness could be guaranteed—and the transmigrators had full confidence in their agriculture.

In the long run, the grain standard was merely a stopgap measure. But given current capabilities, this system was relatively safe and acceptable—after all, the transmigrators had already established considerable credibility locally. Promoting this "grain ticket" should not face too much difficulty.

"I'm still skeptical whether paper money can actually be used," said Li Haiping from the Navy at the discussion meeting, finding the whole thing dubious. "Don't tell me about Song and Yuan dynasty paper currency—that was government-issued. No matter how debased a government becomes, it still has some credit before it completely collapses. What do we have that would make the common people trust us?"

Wen Desi explained: "As long as there's a place where they can exchange it for full value in goods, the common people will accept it. When the pound sterling still had gold content, everyone knew how much gold a gold sovereign could be exchanged for, but practically nobody actually went to exchange it for gold. People only needed to know that the Bank of England would exchange it for gold—that was enough."

"But what do we use for foreign trade payments?" someone from the Commerce Department challenged. "They won't accept your notes, and they don't want your rice either. They've all got their dark eyes fixed on white silver."

"Hehe, still thinking about silver. What do we need silver for—to buy things outside Hainan Island? Why not just have people ship the goods directly here? Why go through the trouble of silver as an intermediary? We're not Spaniards who can't offer anything good and have to rely on silver to buy things. We have attractive goods—merchants will naturally come chasing profits. Direct barter is fine," said Yan Quezhi. Having graduated with a finance degree and understanding accounting, he had already been transferred to the Finance and Banking Committee by Cheng Dong.

"Actually, I also think increasing Linggao's local silver reserves isn't very meaningful," Wen Desi said. "In a small place like Linggao, if there's too much silver, it depreciates. As for current foreign procurement, we have over a hundred thousand in funds available in Guangzhou, and the Guangzhou station will continue to replenish that. Procurement payments aren't difficult."

"If we really need to use money, we can manage with silver pesos," Cheng Dong said. "These coins are very popular along the coast and circulate easily."

"But if outsiders come to our territory, what exchange rate do we use?"

Cheng Dong said: "Let me explain the monetary policy."

The transmigrator regime had no immediate plans to let circulation vouchers completely replace all currency on the local market. That was beyond their current capabilities. The transmigrators only intended to use them as a means of payment and settlement. Silver and copper coins already in circulation would continue to circulate. Exchange rates between them would use rice prices as reference. Assuming rice cost one treasury tael per hundred kilograms, then one treasury tael could be exchanged for 200 yuan of Linggao Circulation Vouchers.

"However, that's just theoretical. For the next few years, we won't exchange our circulation vouchers with miscellaneous silver and irregular coins."

Cheng Dong explained that the reason for not exchanging was that Ming dynasty currency was extremely chaotic, with rampant counterfeiting. Whether silver or coins, the variations in purity were unimaginable, making it very difficult to correctly assess their value—the exchange difficulties were too great.

Someone asked: "I want to know how much ability we actually have to manipulate Linggao's rice market. Since rice is the backing, won't fluctuations in rice prices cause the currency's actual purchasing power to rise and fall?"

"That's indeed a problem," Cheng Dong admitted. Grain was not like precious metals such as gold and silver, whose value was relatively stable. Grain was affected by many external factors. "But I believe that across all of Linggao, the transmigrator government is fully capable of controlling rice prices."

(End of Chapter)