(August 17, 1938)

Nie [Rongzhen] and Peng [Zhen], and for the information of Zhu [De] and Peng
[Dehuai]:

The monetary policy of the Border Region should be based on the following
principles:
1. The Border Region should have a relatively stable currency so as to be prepared to carry on a protracted struggle against the Japanese invaders.
2. The number of notes in the Border Region should not exceed the demand of
the market in the Border Region. Here we have to take into consideration the
possible expansion or contraction of the Border Region.
3. The notes in the Border Region must have a reserve fund: first, goods, particularly industrial products; second, the currency of the puppet government; third,
the currency of the National Government.
4. The Japanese bandits occupy the cities as well as the railway lines; we occupy the countryside. The source of industrial products for the Border Region is
the territory occupied by the Japanese bandits; the market for the agricultural products of the Border Region is also the territory occupied by the Japanese bandits.
Therefore, the Border Region should have proper policies for dealing with the
trade with the outside, so as to support the monetary policy.
5. The military expenditure of the border region is very great, and the financial
and monetary policy should have in mind the source of military expenditure in the
future.
6. Before the final victory of the War of Resistance, the currency of the National Government is sure to continue to depreciate, and it may gradually disappear in North China. Miscellaneous currencies may depreciate even more, and the
currency of the puppet government will also depreciate to a certain extent. If the
number of Border Region notes is too big, it may also depreciate. The crucial point
is that the exchange value of the Border Region currency should not fall below
that of the currency of the puppet government.

--- Notes

Our source for this text is Mao Zedong wenji, Vol. 2, pp. 137-38, where it is reproduced
from a copy in the Central Archives.