Inflation in Eastern China during the Second Sino-Japanese War

Abstract

Abstract. Although the history of the Japanese invasion of China is well-known and well-taught in China, the history of the currency war between China and Japan during the time is far less known. From 1937-1945, China and Japan engaged in not only a military war but also a "currency war." Japan, in an attempt to generate funds for the war from the war itself and to overthrow the Chinese government, attacked China's currency, the fabi (meaning “legal tender”), by printing counterfeit fabi notes and establishing “puppet” banks in China to issue mass amounts of puppet currencies to displace the fabi. These counterfeit notes and puppet currencies quickly circulated into the economy and led to a period known as the Great Chinese Inflation. Both the Nationalists (the governing party) and the Communists immediately took different actions to control inflation and the influx of counterfeit notes. The inflation was widespread not only in Nationalist and Communist-controlled areas, but also in Japanese-occupied areas of China.

Keywords. China, Hyperinflation, Inflation, Second Sino-Japanese War, World War II.

JEL. N15, N25, N45.