The native financial institutions of China appear to have been reasonably adequate to the functions which they had to discharge before the modern era; but they were not fitted for handling the international financial transactions that resulted from trade with Western countries. The European merchants, therefore, themselves had to create what was lacking, for their trade could not develop in the absence of efficient machinery for financing it. But economic institutions have a life of their own. In the political and economic conditions that existed in China throughout the nineteenth century, it was inevitable that once foreign banks had begun to participate in the China trade they should extend the range of their activities. In the end they cast their net over a wide diversity of financial activities and they became, in their own right, important agencies of Western enterprise in the Far East. This, however, was far from being their only function. At times, also, they discharged on behalf of the Chinese Government responsibilities that are normally restricted to central or official banks, and for many years they supplied China with the financial machinery necessary for coping with the financial problems associated with the modernising of her economy. The growth and the activities of the modern banks can hardly be understood without some acquaintance with the condition of Chinese currency and banking in the early years of the modern era, and this will now be briefly sketched.
The Chinese currency at that time was in a state of quite remarkable chaos and muddle. The currency used for the majority of transactions was then the copper cash (i.e. a copper coin with a square hole in the middle to permit stringing). The minting of cash had been a Government monopoly for over two thousand years; there was no system of free coinage and the value of the cash had never been fixed in terms of copper. So, although nominally the value of all cash was the same, by the nineteenth century there were in existence innumerable types which differed from one another in weight and fineness. There was also a large quantity of counterfeit coins. The cash circulated in the form of tiao (i.e. a certain number of cash strung together on a cord), and commodity prices were normally quoted in tiao or fractions thereof. But the tiao themselves varied in the number and type of cash of which they were composed, and a high