China's Unfinished Business With the West and Its Silver

Authored by GoldFix Unlocked ZH Edit

Introduction

Sections:

1. History Repeating Itself: Exploring the Chinese Silver Standard
2. Columbus Started It
3. China Prefers Silver over Gold
4. The Opium Wars and the Decline of China's Sovereignty
5. Development of the Chinese Silver Standard
6. Chinese Private Banks
7. End of an Era
8. What Made Western Fiat Work?
9. Impact on China: Depression and the Rise of Mao
10. History Rhyming Now?
11. ***Early Draft, footnotes

1- History Repeating Itself: Exploring the Chinese Silver Standard

Mark Twain's famous words about history rhyming and not repeating itself echo the common sentiment that humans learn nothing from history. Nevertheless, it is always valuable to delve into the annals of the past.

China has some unfinished business with silver

This is particularly true in the case of the Chinese silver standard, which not only endured as one of the longest-existing coin standards but also successfully unfolded with minimal intervention from the Chinese government.

Its origins can be traced to a development on the opposite side of the world: Christopher Columbus' (re)discovery of America in 1492, paving the way for Spain to rise as the first truly global power.

2- Columbus Started It

The treasures were then unloaded in Acapulco and transported overland to Vera Cruz on Mexico's east coast. From there, alongside other precious metals and New World commodities, the goods made their way to Spain through the Spanish treasure fleet.

The profitability of this trade system during the 17th and 18th centuries was astronomical, with returns on investment reaching 200-300% per trip. However, the emergence of new players like the United States and the British Empire, coupled with changing trade routes, led to a decline in Spain’s profits by the end of the 18th century.

Despite the Spanish trade system's demise in 1821 with Mexico's independence, its effects persisted through the establishment of the silver standard that endured well into the 20th century.

3- China Prefers Silver over Gold

During the 17th, 18th, and 19th centuries, China showed little interest in foreign goods. European products and those from European colonies overseas failed to capture the attention of the Chinese populace.

The Chinese were primarily interested in acquiring silver, which held a significantly higher relative value in their domestic economy compared to gold. The gold/silver ratio in China stood at 1:3, while in Europe, it fluctuated between 1:15 and 1:20. These European figures better reflected the natural distribution of gold and silver in the Earth's crust.

Silver exists in nature at a ratio of between 15 to 1 and 20 to 1. China’s appetite then was 3 to 1. Why Silver is priced at 90 to 1 now given its industrial applications makes no sense

Europeans, however, were captivated by Chinese goods, particularly tea, silk, and porcelain. Spices, precious stones, and woods were also highly sought after. This created an imbalance in trade, with the Chinese amassing substantial surpluses while the Europeans, especially the Spanish and later the English, faced significant deficits vis-à-vis China.

The Spanish, buoyed by seemingly boundless silver mines in Mexico and Peru, supplied approximately half of the silver mined in the Americas from 1500 to 1821 to China. The British, however, found an unethical trade-balance solution in opium.

They heavily promoted its cultivation in Bengal and India through private merchants and smugglers. This trade strategy transformed the deficit into a massive surplus, resulting in the outflow of around 20 million silver dollars from the Chinese empire between 1820 and 1835.

The British Empire's pursuit of this economic advantage, along with the struggles of Central and South American countries for independence, significantly reduced silver mining and altered transpacific trade routes.

4- The Opium Wars and the Decline of China's Sovereignty

China responded to the rampant smuggling of foreign opium by aggressively cracking down on its illegal importation. While China did cultivate its own opium, mainly in the region of Guangzhou (Canton), the British Crown's monopoly in India enabled them to flood the market with vast quantities.

This created a social crisis in China, as addiction spread rapidly and its population faced an embarrassing and humiliating situation. China's attempts to curtail the opium trade ultimately led to the outbreak of the First Opium War (1839-1842), resulting in a British victory.

Under the Treaty of Nanjing, signed on August 29, 1842, China agreed to open the five ports requested (Canton, Amoy, Foochow, Ningpo, and Shanghai), pay an indemnity of 20 million silver dollars, abolish the Cohong monopoly that hitherto had controlled trade in and through Canton, and adhere to a fixed schedule of customs duties. Additionally, the British were granted the right to occupy Hong Kong in perpetuity; this was their sole outright territorial acquisition

The Treaty of Nanjing in 1842 forced China to cede Hong Kong to the British, open up several ports to foreign trade, and grant extraterritorial rights to foreign residents.

These events marked the beginning of a new era in China's economic and political landscape. The influx of foreign goods disrupted local industries, and the trade imbalance only widened. The Chinese government struggled to find a solution to this crisis, leading to the eventual adoption of the Chinese silver standard to curtail outflows to the UK.

5- Development of the Chinese Silver Standard

The Chinese silver standard evolved gradually, largely untouched by state intervention. As silver flowed into the country, it formed the basis of China's monetary system. The Great Tax Reform implemented by Zhang Juzheng in 1581 officially recognized silver as the standard medium of exchange.

Silver Ingots of The Qing Dynasty

While the Chinese silver standard existed for over three centuries, it lacked uniformity. The system relied on various coins and silver certificates, each with their own weights, shapes, and fineness.

Foreign silver dollars, particularly those minted in the United States, gained popularity due to their standardized specifications, making them widely accepted in Chinese trade.

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