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Changing Times
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On the morning of December 30, 1993, dozens of foreign ambassadors, their wives and anxious foreign businesspeople stormed into a duty-free store in the east of Beijing, packing their bags with anything they found on the shelves.

But the unusual shopping spree was not ignited by the New Year Eve rush, but instead by an unexpected overnight announcement from the central bank saying it would stop issuing foreign exchange certificates (FECs), a convertible version of renminbi used by foreigners in the mainland, from the beginning of 1994.

Although the People's Bank of China made it very clear that existing FECs could still be used temporarily, FEC holders believed the sooner they spent them, the better.

The duty-free store in Jianguomen, located close to many embassies and office buildings, sold 9 times more goods than that on a usual day.

"Business was even hotter than at Christmas," Dong Jixiang, manager of the store, told China Daily. "We may even have to cancel New Year holiday tomorrow," he said at the time.

International companies in Beijing were also facing chaos in their offices. Many of the Chinese employees working for foreign companies were paid in FECs, which were supposedly equal in the value of yuan but were actually worth 30 percent more than renminbi on black market.

They were keen to find out whether their bosses would compensate them if they were to be paid in renminbi in the future.

"We are getting burned," a clerk at the Beijing Office of Hong Kong Trade Development Council told China Daily.

Privilege Money

China started to issue FECs on April 1, 1980. Before they were finally withdrawn from the market on January 1, 1995, China had a 15-year history of a dual-track currency system under which two kinds of currencies -- renminbi and FECs -- were in circulation in the market simultaneously.

FECs were originally designed to serve visitors from overseas who came to China after the country moved out of isolation in 1978. The country very quickly embraced a growing number of foreign visitors, as well as Chinese returning from Hong Kong, Macao and Taiwan.

At a time when the market supply was tight, Chinese people had only a fixed supply of daily necessities such as grain, pork, cloth and bicycles. The government built up hotels, restaurants and stores to serve people from overseas.

As foreigners were not allowed to hold and use renminbi then, the State Council authorized Bank of China, which had the strongest foreign currency business among China's four State banks at the time, to issue FECs in 1980 to enable overseas visitors to purchase goods in China.

When foreigners and Chinese from Hong Kong, Macao and Taiwan arrived, they were told to go to Bank of China outlets or other designated places to change their foreign currencies into FECs. When they left the Chinese mainland, they could choose to covert FECs back into hard currencies or just hold on to them for use in their next trip. Many foreigners just called the FECs "tourist money".

The FECs had seven denominations -- 100 yuan, 50 yuan, 10 yuan, 5 yuan, 1 yuan, 5 jiao and 1 jiao, all with pictures of Chinese scenic spots like the Great Wall, Three Gorges, and the Temple of Heaven at the back.

FECs were privileged money. As Kenneth Starck, a journalism professor from the University of Iowa in the US who came to China in 1986, described in his book, The Dragon's Pupils: "If money talks, FEC speaks louder than renminbi by 50 per cent or more". With FEC, a person could buy goods imported to China, purchase at special shops and change it back to US dollars -- these were all things that could not be done with renminbi at that time.

FECs could only be used in certain approved designated outlets -- such as hotels, Friendship Stores, and duty-free shops, where people could find luxury imported goods -- ranging from Remy Martin Xos to Marlboro cigarettes and from color TV sets to Swiss watches -- items which were popular with foreigners. Popular Chinese artifacts and silks were also available in the Friendship Stores.

Still, there were some Chinese people who could get some FECs from their overseas relatives or friends. They became the envy of their colleagues, neighbors and friends as owning FECs meant access to imported products which were usually not available.

Such privilege aroused concerns even among foreigners themselves. On September 11, 1980, People's Daily published a letter from a professor from the Massachusetts Institute of Technology (MIT) who just completed his first visit to China. In the letter, he said that preferential treatment to foreign visitors made him feel uneasy. Such a system that allowed non-Chinese people to live, shop and eat in special places not open to ordinary Chinese people reminded him of the privileges granted to foreigners in the period when China clinched unequal treaties with foreign countries (in the 19th century). He "strongly" suggested a re-consideration to the system.

Starck also called the two-money system a "confused" and "pernicious" one as it debased the official currency and encouraged the black market.

However, many local people still coveted FEC because it bought foreign goods and could be converted into real foreign currency like the US dollars. Starting from the 1980s, more and more Chinese people began to leave their country to study abroad or visit their relatives overseas, and they needed hard currencies. Even students taking TOEFL (Test of English as a Foreign Language) had to pay with foreign currency to take the exam.

Such a strong desire for FECs and greenbacks spurred the birth of a whole generation of street money changers throughout the country.

Money Changers

"Change money? Change money?" This might be the most frequent greetings to foreigners walking alone in Beijing and other major tourist cities in China in the 1980s and early 1990s. Black market dealers, risking prison, found business opportunities from Chinese people's hunger for FECs and foreigners' desire for renminbi that could enable them to shop anywhere. And the gap between the value of renminbi and FECs made the business a profitable one -- although it was illegal.

Before 1994, China had a dual-foreign exchange rate system. One was called the official rate set by the State Administration of Exchange Control, at about 5.8 yuan against $1 before 1994, and another one was market driven rate quoted in the swap market, at about 8.7 yuan against $1 then. Only about 20 per cent of hard-currency transactions were conducted at the official rate. The dual-rate system was abolished on January 1, 1994.

But before this, individuals could convert FECs back to hard currencies, like the US dollar, according to the official rate, but if people wanted to buy US dollars with renminbi, they had to go to the black market where the exchange rate was slightly higher than in the swap market which served only enterprises and trade companies. Normally, the exchange rate in the black market was around 9 yuan against $1 at that time.

Furtive deals had to be done in a dark hutong, behind a wall, or in a market stall as both foreigners and Chinese looked over their shoulders to see if any police were nearby as the deal was struck. Completed, the money changer would go and convert the FECs into hard currencies and sell them to local people, while the foreigner was free to go and eat in local restaurants and shops with his illicit renminbi.

In 1993 before China reunified its dual-track foreign exchange rate system, black marketers usually paid 130 yuan for 100 FECs, according to earlier reports in China Daily.

The illegal business was so hot and soon spread across the nation. In busy shopping areas or outside tourist hotels in Beijing, Shanghai, Guangzhou, Hangzhou and Kunming, all kinds of people, men and women, young and old, patrolled to stop foreigners to ask for money changing business. Meanwhile, around outlets of Bank of China, black dealers stopped whoever they believed to be a potential customer to ask: "Need FECs?"

Even the central bank's move to unify the dual-rate system and stop issuance of FECs in the beginning of 1994 didn't perish this profession. The black money-changers only changed their question to "Need US dollars?" as individual Chinese people still didn't have official channels to buy hard currencies, and the hunger for US dollars kept growing.

Things started to change in 1998 when China began to gradually relax rules on individuals buying foreign currencies. In that year, regulations were released to allow individuals to buy $2,000 on each overseas trip for private purposes.

In September, 2003, the quota was raised to $3,000 for overseas trips within six months and $5,000 for trips longer than half a year, and a further rise in August 2005 sent the quotas to $5,000 and $8,000 respectively.

Starting from May 1, 2006, an annual quota system was initiated under which one Chinese person could buy $20,000 per year. The quota was raised to $50,000 starting from February 1, 2007.

With the Chinese people enjoying the freedom to stop by major bank outlets today to buy hard currencies, the once happy money-changers had to look for new businesses to make a living.

Collections' Item

The Friendship and duty-free stores also faced a transition. Most became ordinary department stores, although some still retained the name of "Friendship Store".

The Foreign Exchange Commodities Building in Beijing's Chaoyang District was once one of the biggest shops in Beijing for FEC holders. In the early 1990s, shopping there with FECs was something that aroused envy. Later it was refurnished and became the Beijing International Jewelry Trading Center.

But the FECs became new favorites for some people again -- this time, in collection market.

In Beijing's stamp and coin collection market, a whole set of FECs of seven face values can be sold at around 10,000 yuan now.

In Xiamen, the 5 jiao FEC with the Temple of Heaven picture on its back is traded at around nine yuan while the price for FEC with a face value of 100 yuan with picture of the Great Wall is about 1000 yuan.

Traders believe there is room for further price hike because most of the FECs were destroyed after being recouped by Bank of China, with a very limited number still in people's hands.


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