(Yicai Global) June 22 -- ‘Red finance’ initiatives adopted in the early days of the Communist Party of China were not so far removed from the efforts to make today’s financial sector support the real economy, Chen Hu, deputy director of the Liuyang Financial Affairs Center, told Yicai Global.

To solve the problem of peasants being unable to borrow money to buy food during periods of famine, the newly established CCP set up its own financial system in Hunan province in the 1920s, opening banks and mints, with Mao Zedong putting forward the idea of establishing a bank there.

The First Peasant Bank of Chaishanzhou Special District in Hengshan county, Hunan province was officially established in 1926. It was the first people’s financial institution and the first peasant bank created under the leadership of the CCP. 

The bank issued its own currency, which was also the first issued by the new regime. The currency was a cloth printed note about 13.3 centimeters long and 6.7 centimeters wide. It had a face value of CNY1 and could be exchanged for one silver dollar. Local villagers said that the currency was not only circulated in the mountainous regions, but also in the surrounding areas. It was popular with peasants because of its reliable credit.

Farmers’ associations in various parts of Hunan founded a total of 10 financial institutions from the autumn and winter of 1926 to the spring of 1927, issuing more than a dozen currencies. The First Peasant Bank of Chaishanzhou Special District was forced to close in 1927, after operating for 14 months. But as the first revolutionary bank formed under the CCP, its influence lived on.

The bank had a clear purpose of issuing convertible currency to help people solve difficulties and develop production. These provided valuable references for the government’s subsequent economic work in creating a financial system, carrying out financial activities, and governing and rectifying the economic order. 

It was because of the strict implementation of the core credit standards in finance that the red financial system was quickly recognized, Chen noted.

“Red finance mainly served and supported peasants, agriculture and handicrafts,” he said. “At that time, in a place like Liuyang, peasants were the main population, and the vast majority of them were engaged in agriculture and handicrafts, which were the main real economy in Liuyang then.

“From this perspective, it was in line with today’s finance sector serving the real economy,” he said.

Editor: Tom Litting