The Chinese currency system is centralized, minting is controlled, and millions of depreciated banknotes from provinces are recalled. In 1935 the Nationalists set up the new fabi currency. Prices plummet during World War II, and the U.S. lends China between $25 and $50 million to help stabilize itself. In a final effort to halt inflation in 1948, China switches to the gold yuan currency system.
A new "people's currency," the renminbi, is introduced, but the Chinese are allowed only a short time to exchange gold yuan notes for renminbi. Trading in gold, silver, and foreign currency is expressly forbidden. When America opens relations with the People's Republic of China, the ban on U.S. dollars is lifted, and Chinese-Americans send money to relatives on the mainland.
Reform in the 1980s allows foreign participation in banking and financial services, but the system remains under government control. Rapid and uneven development sparks rampant inflation, which continues into the 1990s after the drastic 1994 devaluation of the renminbi. Inflation then drops amid explosive economic growth under Jiang Zemin.
China withstands the Asian financial crisis of 1998; its large domestic market cushions the external shock, and the currency authorities succeed in avoiding a devaluation of the yuan that might have worsened the regional effect. The yuan's exchange rate is still fixed by the government; some of China's trading partners urge revaluation.
back to top