Section 1 Exploration and reconstruction of the financial system after the founding of New China（1949—1977）

On October 1，1949，the People's Republic of China was founded. Since then，China's economy has been growing rapidly at a pace not seen in its modern history that began from 1840.After the recovery of the national economy during 1949—1952，China entered the “Five-Year Plan” period. From 1952 to 1978，the total national output value increased from 101.5 billion yuan to 684.6 billion yuan（an increase of 575%），national income increased from 58.9 billion yuan to 301 billion yuan（an increase of 411%），and government revenue increased from 18.37 billion yuan to 112.11 billion yuan（an increase of 510%）. Consumption in national income increased from 47.7 billion yuan to 188.8 billion yuan（an increase of 296%），and the total retail sales increased from 27.68 billion yuan to 155.86 billion yuan（an increase of 463%）. The total wages of employees rose from 6.83 billion yuan to 56.89 billion yuan（an increase of 733%），the household consumption level increased from 76 yuan to 175 yuan（an increase of 130%），and the balance of urban and rural residents’ deposits increased from 860 million yuan to 21.06 billion yuan（an increase of 2349%）. The total investment in fixed assets increased from 4.36 billion yuan to 66.872 billion yuan（an increase of 1434%）；the total import and export volume increased from 1.94 billion US dollars to 20.64 billion US dollars（an increase of 964%）.[1] The huge achievements in all aspects of economic construction were directly related to the support of currency and finance. While supporting the economic construction of New China，the financial system began to reconstruct itself.

I.The budding of the financial system during the New Democratic Revolution：1922—1949

The origin of New China's financial system can be traced back to the birth of the Chinese Communist Party（CPC）. In December 1922，the CPC Central Committee proposed to “establish lending institutions for farmers” and implement internal borrowing in the Plan of the CPC on Current Practical Issues.In 1925，the CPC Report to Farmers was published，proposing that “every village's self-government organ shall use local public funds to establish an interest-free lending office for farmers”. The financial policy of the CPC for the peasant movement and the united front was reflected by the establishment of farmers banks，currency issuance and low-interest loans. After the Agrarian Revolution began in August 1927，the CPC led the masses in armed struggle and established revolutionary base areas. The period of 1927—1932 witnessed vigorous financial development in the revolutionary base areas. Financial institutions were established in eight revolutionary base areas including the Central Soviet Area，and a total of 96 currencies were issued.[2] In February 1932，the National Bank of the Chinese Soviet Republic was established in the Central Revolutionary Base Area. It was a specialized institution established to support the revolutionary war，develop the economy of Soviet areas，implement unified monetary and financial policies，formulate rules and regulations，and carry out various banking operations. During 1933—1937，the financial development of the revolutionary base areas entered a low tide. In 1937，the War of Resistance Against Japanese Aggression broke out，and the CPC established several border banks in the revolutionary base areas to support the war against Japan. From 1945，regional banks such as Northeast Bank，Central China Bank，Inner Mongolia Bank，and Central Plains Military Region Bank were established，which greatly supported the War of Liberation.

II.The financial system in the early period of socialist construction：1949—1957

On December 1，1948，in order to have a unified currency，promote commodity circulation，and support the restoration and development of industrial and agricultural production，the CPC Central Committee established the People's Bank of China（PBC）on the basis of Beihai Bank，North China Bank，and Northwest Farmers Bank，and issued RMB on the same day（the first set of RMB），kicking off the development of the financial industry and the establishment of the financial system in New China.

In February 1949，the Head Office of PBC moved from Shijiazhuang to Peiping. The primary task of PBC in its early days was to “take over and build”. It took over bureaucratic capital banks，and quickly established branches at all levels，while continuously classifying and integrating various financial institutions in the old and new liberated areas. In 1949，a preliminary，unified and comprehensive financial system was established，covering regional banks，provincial and municipal branches，district sub-branches，county sub-branches，sub-district offices，business offices，and savings offices. Based on the first set of RMB issued by PBC，the exchange of different types of currencies was gradually scheduled，which quickly ended the chaotic currency situation，and a unified RMB system was established. The financial construction of New China made significant contributions to the restoration of the national economy，the stabilization of severe inflation in the early days of New China，and the balance of national fiscal revenue and expenditure. PBC became the central bank after the founding of the People's Republic of China，and RMB became the legal standard currency. Since its establishment，PBC has been given the special status as a national bank，and has undertaken important responsibilities of leading and managing the Chinese financial industry.

On September 29，1949，the First Plenary Session of the Chinese People's Political Consultative Conference adopted the Common Program of the Chinese People's Political Consultative Conference （hereinafter referred to as the “Common Program ”），which clarified New China's financial policy：savings should be encouraged，overseas remittance should be facilitated，and hot money should be channeled into production；financial development should be strictly managed by the state；the power to issue currency should belong to the state；foreign currencies were prohibited from circulating in the country；trading of foreign exchange，foreign currencies，gold and silver should be managed by the national bank；private financial businesses operating in accordance with the law should be subject to state regulation and guidance；and those who engaged in financial speculation and undermined the country's financial development should be severely punished.

In August 1949，at the National Financial and Economic Conference，it was decided to put PBC in charge of establishing state-owned insurance companies. On October 20 of the same year，the People's Insurance Company of China（PICC），the first insurance company of New China，was established，and its branches were set up throughout the country. By the end of 1952，PICC had established 4，416 branches at all levels with more than 34，000 employees.[3]

Prior to the founding of New China，China had four stock exchanges based respectively in Hong Kong，Shanghai，Tianjin and Peiping. Excessive trading and speculative fraud were rampant. In June 1949，the Tianjin Stock Exchange，which was transformed after the liberation of Tianjin，officially opened for business. This was the first stock exchange after the founding of New China. On January 30，1950，the rebuilt Beijing Stock Exchange reopened. However，due to problems such as excessive trading and speculation，as well as huge bad debts of brokers，Beijing Stock Exchange was closed down in October 1952，and Tianjin Stock Exchange was merged into Tianjin Investment Corporation. In December 1953，to address the shortage of fund for economic construction，the central government issued the 1953 Regulations on Government Bonds for National Economic Construction，and began to issue government bonds for economic construction in 1954.The amount of government bonds issued in 1954—1958 was 3.553 billion yuan，and the issuance ceased in 1958.

On March 3，1950，the 22nd Administrative Conference of the Government Administration Council of the Central People's Government adopted and issued the Decision on Unifying the National Financial and Economic Work，stating that goods must be supplied and sold in a planned manner，currencies must be withdrawn，and cash from daily sales must be deposited in the national treasury. PBC was the head office for national cash dispatching and was responsible for managing the national treasury，foreign exchange quotes and foreign exchange dispatching. The cash of all military and government agencies as well as government-operated enterprises shall be deposited in the national bank. The Central Treasury Regulations was adopted and issued on the same day. On April 7 of the same year，the Government Administration Council adopted the Decision on Implementing Cash Management of State Institutions，and Zhou Enlai，the premier of the Government Administration Council then，and Nan Hanchen，governor of PBC then，jointly issued an order to implement cash management of state institutions，marking the start of formulating regulations for the financial system of New China.

On February 4，1952，the Government Administration Council promulgated the Interim Regulations of the People's Republic of China on the Management of Gold and Silver，which stipulated that PBC was the competent authority for the management of gold and silver；gold and silver trading should be managed by PBC and its authorized agents；and smuggling，selling，private trading，valuation，exercising，lending and mortgage，and private smelting of gold and silver were prohibited to maintain a well-organized financial market. By the end of the national economic recovery period in 1952，China had established a financial system with PBC as its core and co-existence of several professional banks and other financial institutions under the unified leadership of PBC. Unified management of various financial institutions was implemented to effectively control the money supply and demand in the market. China began to establish a highly centralized banking system and formed a “grand unification” system of PBC. The new Chinese financial system successfully stopped the inflation that had lasted for many years，stabilized the financial market，facilitated the exchange of goods in urban and rural areas，supported the development of the state-owned economy and agricultural production，and promoted the post-war restoration and development of the national economy. The central government restricted financial market participants with systems and regulations，which would play an important role in the stable development of the financial industry and the restoration of the national economy. At the end of 1952，China completed the arduous task of restoring the national economy，fundamentally improved its fiscal and economic conditions，and created conditions for planned large-scale economic construction and socialist transformation. Since 1953，China had carried out large-scale economic construction in a planned way，established a centralized and unified comprehensive credit planning and management system，implemented a “centralized deposit and unified lending” management method，and incorporated the bank credit plan into the national economic plan，providing comprehensive financial regulation and services for economic construction.

On February 21，1955，the State Council issued the Order on Replacing Existing Renminbi with New Renminbi and ordered that，starting from March 1，1955，a new version of RMB（the new currency）that featured Chinese，Tibetan，Mongolian and Uyghur languages would be issued by PBC to replace the old version of RMB（the old currency）. One yuan of the new currency would be equivalent to 10，000 yuan of the old currency. Anyone who forged or altered RMB and sought illegal gains during the exchange between old and new currencies would be severely punished according to law. Since then，RMB has maintained long-term stability of its currency value and has gradually become one of the indispensable and important currencies in the global financial system. On November 19，1957，the State Council issued the Order of the State Council on Issuing Monetary Cents，and decided to issue 1-cent，2-cent，and 5-cent coins on December 1，which would be put into circulation with 1-cent，2-cent，and 5-cent notes. Thus a relatively complete RMB currency structure was formed.[4]

III.The financial system in the special period of socialist construction：1958—1977

In 1959，PICC suspended its domestic insurance business，except an extremely limited overseas insurance business. Its management functions were transferred to PBC. As a result，financial institutions were largely integrated into PBC. Since then，the development of China's financial industry had experienced twists and turns. Although the financial system was adjusted，it maintained simple functions such as accounting and cashier.

On March 10，1962，the CPC Central Committee and the State Council issued the Decision on Effectively Strengthening the Centralization and Unification of Banking Work and Strictly Controlling Currency Issuance to guide the adjustment of financial work. The document emphasized that “the national bank is the center and hub of capital activities of various sectors of the national economy. By controlling the banking sector，the state can effectively promote and regulate the adjustment of various economic sectors and the improvement of business management”，and required that PBC must play an important role in the process of economic adjustment.

In July 1969，PBC and the Ministry of Finance began to share the same office and play a central role in the national economic system during the special historical period. The national bank was regarded as an accounting，cashier and financial management agency，and mainly used integrated credit plans，cash plans，cash management and other administrative means to control the total amount of cash and credit，and to achieve the goals of developing the economy and ensuring supply.

On November 28，1977，the State Council issued the Regulations on Rectifying and Strengthening Banking Work.In accordance with the spirit of this document，PBC carried out a preliminary and comprehensive rectification of banking work. After the rectification，the work of banks was improved，and banks’ position and role in the national economy were strengthened，leading to a significant increase in economic growth.

In January 1978，PBC and the Ministry of Finance were officially separated from each other. Fourteen divisions and bureaus of PBC were restored. By the end of 1978，the unified system of PBC had been fully restored.

Under the planned economy model，the “grand unification” financial system was conducive to unified command and facilitated policy implementation and overall control. It showed evident efficiency and advantages during the “First Five-Year Plan” period and the three-year economic adjustment period in the early 1960s. However，the highly centralized planned economy model was not compatible with the need for developing social productive forces，ignored the role of commodities and the market，and caused a lack of initiative among financial institutions at grassroots level，in particular. Therefore，finance failed to play a full role in the national economy，as Deng Xiaoping said many times：“In the past，banks were not real banks，they served as accountants and cashiers，and they were currency issuing companies”. When developing a socialist commodity economy and bringing vitality to socialist enterprises was placed on the agenda，it was a realistic and urgent need to overcome these shortcomings by reforming the financial system.

From its founding in 1948 to the full restoration at the end of 1978，PBC's function of “managing funds” was established. China quickly established a highly centralized and unified planned economy system. To be in line with this development，China's financial industry adopted a highly centralized and unified management approach. National credits replaced commercial credits，and a fund system that featured unified management of revenue and expenditure and of deposits and loans was established. Financial institutions were shrinking：Agricultural Bank of China was established and closed down three times，and Bank of China was merged into PBC. China's financial industry mainly consisted of the banking industry，and operated under the planned economy system，PBC was not only the central bank of China，but also a major commercial bank that accepted deposits and provided loans. The “grand unification” banking system became an important feature of the era before the reform and opening-up.