NEW BOOK: EMPIRE OF SILVER

China may have been the first country to experiment with paper money, but modern finance took off in Europe rather than the Far East. In the West, banks and credit markets seeded the growth of capitalism. By contrast, China gave up on paper money long before Columbus set sail for the New World. From the 15th century through the 1930s, the Chinese were stuck with silver money. Without access to credit, the Middle Kingdom yielded economic primacy to England and later the United States. This important story is related in Empire of Silver, a quirky, though instructive, monetary history by Jin Xu, a Shanghai-based editor at the Financial Times Chinese.

Paper money, Ms. Xu tells us, dates back to the Tang dynasty in the ninth century, when the authorities allowed merchants to exchange bronze coins for promissory notes, known as flying cash. Two centuries later, in the time of the Song dynasty, merchants in Sichuan were using private exchange notes in place of the cumbersome iron coinage. The Song emperor issued his own paper money against deposits of coin. The jiaozi, as these notes were called, proved so popular that they traded at a premium to cash.

The convenience of paper money proved its undoing, however. The first temptation was for the Song authorities to make the jiaozi inconvertible, severing the connection with metal reserves. The next step was to increase the issue of paper money, both to feed the people and, more pressingly, to fund the fight against the Mongol invaders. The inevitable outcome was inflation, followed by the collapse of the currency. The Mongols resurrected paper money. Marco Polo, in the late 13th century, reported that Kublai Khan, the great Mongol leader, had discovered the secret of alchemy by making money from the bark of mulberry trees. But in time the Mongols issued too much paper and sparked a hyperinflation, as did their successors, the Ming. From the late 14th century onward, silver replaced paper money in China.

The advantage of white gold, Ms. Xu emphasizes, was that it couldn’t be conjured up at the emperor’s command. The silver currency provided stability, a quality much prized by the mandarinate. But there were disadvantages. Lacking domestic reserves, silver had to be imported from abroad—first from Japan and then from the Americas. Massive inflows of silver promoted vigorous economic expansion in the late Ming era. In the 1630s, however, Spain stopped exporting American silver to the Far East. The money shortage in China that followed coincided with crop failures brought about by the Little Ice Age. Ms. Xu suggests that silver was the fuse for the collapse of the Ming dynasty in 1644.

The Americans unwittingly brought silver’s long monetary reign to an end. In June 1934, President Roosevelt signed the Silver Purchase Act, instructing his Treasury to acquire the precious metal at several times its prevailing market price. Roosevelt intended to help out U.S. silver producers, but the chief effect of his measure was to suck silver out of China. Not long after, Chiang abandoned silver, issuing a paper currency that was printed in unlimited quantities after the Japanese invasion. The result was another Chinese hyperinflation. As Ms. Xu writes in her idiosyncratic fashion: History always knocks twice, first as comedy and then possibly as tragedy.

To read the complete article (subscription required), see:
‘Empire of Silver’ Review: Eastern Standard (https://www.wsj.com/articles/empire-of-silver-review-eastern-standard-11615417784)

	NBS (coinbooks.org) Web