Since 2009, the issue of whether China should issue high-denomination banknotes, such as 500-yuan and 1,000-yuan bills, has been a hotly debated topic. It came back to the public’s attention last month when an economist at a commercial bank said the People’s Bank of China would print 1,000-yuan notes this year, a statement that was quickly denied by the central bank.
While authorities are keen on quelling any speculation about high-value notes, there is mounting public skepticism over the necessity of such notes, a view that offers some insight into the Chinese people’s growing worries over a combination of social and economic problems including loose monetary policy, inflation, wealth gap and corruption.
Issuing 1,000-yuan notes can obviously promote convenience and help save resources, and people who support the idea mostly cite rising income as a major reason.
Hong Kong’s currency history may provide a basis for comparison. The city started to issue HK$1,000 notes in the late 1970s, when its average resident income was no more than 6,650 international dollars a year, a unit based on purchasing power parity, according to the World Bank. Mainland China’s average resident income exceeded 9,000 international dollars in 2013, so it seems to suggest Beijing should have pressed the “print” button for high-denomination notes years ago.
But 1,000-yuan notes appear to be more than an issue of money use. First of all, many fear that the appearance of such bills may fuel the authorities’ enthusiasm to increase liquidity. Since the cost of printing a 1,000-yuan note is the hardly different from that of doing a 100-yuan bill, the central bank will lean toward printing more money and injecting it into the capital market.
Authorities’ addiction to easy credit to spur economic growth has been criticized in recent years since the harmful effects of a loose monetary policy became obvious after the government launched a 4 trillion yuan stimulus package at the height of the global financial crisis in 2008. Years of massive liquidity resulted in a host of problems including over-reliance on the property market, swelling local government debts, poor capital allocation and an undeveloped service industry – things that the current administration is working painstakingly to overcome.
Therefore, it is no wonder many people frown at any proposal of creating high-denomination banknotes, fearing it will trigger another round of credit spree.
Concerns over liquidity-induced inflation also run high, with some citing lessons from recent history to oppose the 1,000-yuan notes. High-denomination notes were often the result of war and came with the risk of high inflation. In the United States, the War of 1812 and the American Civil War saw the issuance of high-denomination notes. They were not printed after the end of the World War II. In China, memories of hyperinflation resulting from money-printing frenzy during the civil war (1945-49) are still fresh in the minds of many elderly people. The experience is often mentioned whenever debates over 1,000-yuan notes pop up.
Another group of people do not favor big-number bills simply because they don’t see a lot of people will use them often. A 1,000 yuan note may be favored by the rich class, whose ranks are growing, with the 2013 World Wealth Report by Cap Gemini and Bank of America saying that the number of millionaires in China has hit 758,000, putting the country fourth in that regard behind the US, Japan and Germany. But thanks to a widening wealth gap, China’s poor population has been increasing in the past few years based on the latest global standards.
According to a survey by Southwestern University of Finance and Economics, 10 percent of Chinese families accounted for 60.6 percent of the country’s family assets in 2013. As rich people may be happy to see their wallets can contain more money with 1,000-yuan notes, the extremely poor families in places such as Guizhou and Yunnan may not even have a chance to see a 100-yuan note in their lifetime. In this sense, the 1,000-yuan note serves as a reflection of the country’s widening poor-rich gap.
Another interesting reason to say no to the note is the need to prevent corruption, as a few netizens have suggested. Citing media reports that corrupt officials tend to receive euro notes as bribe money, these netizens say that the appearance of 1,000-yuan notes will only provide convenience for these corrupt officials since dirty money will now come in smaller wads of banknotes.
To be fair, the 1,000-yuan note itself should not be blamed for these problems. Changing the denomination without changing the whole value of money printed won’t increase liquidity or inflation. Issuing only small-denomination banknotes won’t narrow the wealth gap. And if high-denomination banknotes are really a major reason of corruption, it would be better to ban the use of gold because the metal carries highvalue in smaller volumes.
The reasons cited above do not have a sound footing, but the phobia over 1,000-yuan bills reflects deeply rooted worries of the Chinese people, and those are the things policymakers should look into.
The author is an economic commentator.
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