How Is Money Driven? The Case in Shanghai (1949–1950)

Abstract

This article presents a case study of how the Renminbi won the currency war in Shanghai between 1949 and 1950. This case study supports the proposition of chartalism and MMT that money is a creature of the state, and in two ways deepens our understanding of the role of the state in the sovereign currency system. First, taxation is not the only way to drive money. The Shanghai government also drove money by supplying goods. Second, the outcome of a currency war depends on many historical factors, and the government plays an important role by changing the conventions that shape people’s monetary behavior. The Shanghai government adopted anti-inflation policies to transform the conventions of valuing commodities and metallic currencies over paper currencies.