Chapter 53 Silver Rush: The First Sino-US Currency War

While various domestic capital systems are scrambling and staking land, the international environment is also undergoing major changes.When the Great Depression swept the world in the 1930s, major capitalist countries such as Britain, Canada, Japan, and Austria successively abandoned the gold standard system and began to implement currency depreciation in an attempt to open the door to other countries' markets with exchange rate depreciation, so as to benefit their own economies. find a way. In 1933, in order to get rid of the economic crisis, President Roosevelt of the United States began to implement the "New Deal" to increase government spending and stimulate economic growth.At the same time, in order to combat deflation and falling prices, the "Silver Acquisition Act" was passed, authorizing the U.S. Treasury Department to purchase silver in domestic and foreign markets until the price of silver reached $1.29 per ounce [8], or the value of silver in Treasury Department reserves reached the value of gold. 1/3 of the reserve is used as treasury reserve [9].The policy tries to achieve two strategic purposes: first, the increase in reserves naturally expands the basis of money supply, trying to ease the deterioration of deflation by expanding money supply; Rising prices, increasing the purchasing power of the silver standard countries, in effect forced the appreciation of the currencies of China and other silver standard countries in order to dump surplus goods on them.

The history is surprisingly similar! The "Silver Acquisition Act" promoted by Roosevelt in 1933 and Obama's attempt to force the appreciation of the renminbi in 2010 can be said to be completely consistent! Roosevelt's two main aims were clearly impossible to succeed.The core problem of the Great Depression in the United States is that the ratio of debt to GDP is too high. In 1929, the ratio was as high as 300%!Under the high debt, the expansion rate of American industry far exceeds the level of increase in the domestic purchasing power of the United States. As a result, the domestic consumption capacity is insufficient, which leads to a serious surplus of products in industrial enterprises, large-scale defaults on corporate debt, and then triggers the stock market crash and large-scale banks. Bad debts and closures.The crisis of default forced banks to tighten their credit. As a result, more businesses closed, a large number of workers lost their jobs, domestic consumption power plummeted, and the problem of excess industrial products became more serious. From this vicious cycle, it was deflation, falling prices, large-scale unemployment and economic depression. .This point is exactly the same as the essence of the 2008 US financial tsunami! In 2008, the total debt-to-GDP ratio of the United States was as high as nearly 400%. Obama's thinking on managing the crisis is also highly similar to Roosevelt's. (See "Reckoning the Economics of Lies: Roosevelt, Greenspan, and Obama, No One Can Save the United States", by Thomas Woods, China Industry and Commerce United Press, 2010.1)

Do not start by reducing the scale of debt, only start by increasing money and credit, this is a dead end!Roosevelt's New Deal failed to solve the Great Depression in eight years, and Obama may have even worse luck. If the core of the crisis is too much debt, is it useful to increase money supply preparations?The conclusion is necessarily negative.The increase in reserves does not solve the problem that no one is willing or able to borrow money under high debt, and credit must rely on borrowing to flow into the economy.Roosevelt's first goal was simply impossible to achieve. Will pushing up the price of silver and forcing the Chinese currency to appreciate can solve the problem of US exports?The rise in the price of silver in the United States will inevitably lead to the outflow of metal currency in China for arbitrage, which will seriously shake China's standard currency.The result is a severe recession in China's economy, a sharp drop in consumption capacity, and an inevitable reduction in imports.

Roosevelt's "Silver Acquisition Act" played a role that was bound to be the exact opposite of what he envisioned.There is no superficial explanation that can explain why Roosevelt's practice of harming others and benefiting himself came from?In fact, the ruling elites in the United States are completely considering higher-level strategic issues!This is how the dollar replaced the pound and became the new overlord of the world currency! When Chiang Kai-shek completed financial centralization and currency unification, and established the silver standard system, the current currency hegemony Britain, the potential currency hegemony the United States, and the coveted Japan all had a strong sense of crisis at the same time.If Chiang Kai-shek is allowed to consolidate China's financial high frontier, then China may become another Japan, and its economy, politics and military will gradually gain independent strength.None of the three major powers wants to see a truly powerful and independent China appear in the Asian continent!

If you want to subvert China's silver standard, the first target is the cornerstone of China's currency - silver!This point is no different from the British opium strategy that subverted the currency standard of the Qing Empire.It's just that this time it was the United States who did the work, and it used a more concealed and "civilized" method.Artificially raising the price of silver in the world will lead to a large-scale outflow of silver from China. There is no silver currency in circulation, and the silver standard will be self-defeating!When Chiang Kai-shek cannot achieve monetary independence, he can only rely on one of the three major powers.After subverting China's silver standard and currency autonomy, there are only three future paths for China's currency: first, peg it to the British pound, join the British pound alliance, and become a monetary vassal of the British pound; East Asia Co-Prosperity Sphere” and became Japan’s economic colony; third, it formed an alliance with the U.S. dollar, jumped on the big ship of the United States, and became the largest market and raw material supply base for the United States in the Far East.

No matter which currency is linked to, China is bound to lose its currency sovereignty!China's currency standard will become a foreign currency exchange standard, with foreign currency as a reserve or a fixed exchange rate as the benchmark to issue Chinese currency.In order to maintain a stable exchange rate, China must reserve a large amount of foreign currency in order to intervene in the market when the exchange rate fluctuates.In this way, the foreign exchange issuing country is equal to creating a private land for overseas reserve "seigniorage". The larger the overseas foreign exchange reserves, the more amazing the "seigniorage" income of the issuing country!Not only that, the currency-issuing country can also indirectly control the credit expansion and contraction of all overseas reserve countries through the adjustment of the monetary policy of the central bank of the country.Still the famous saying: "If I can control the currency issuance of a country, I don't care who makes the laws!"

As a result, which currency China's currency is linked to has become the main currency battlefield between the United States, Britain, and Japan. Silver prices skyrocketed as the U.S. government made massive purchases of silver in the New York and London markets.Attracted by the rise in international silver prices, China's silver was "exported" in large quantities.China is not a big silver-producing country, and the silver originally used for coinage still needs to be imported. At that time, China's silver flowed away like a torrent of water. In 1934, in just over three months, the outflow reached 200 million silver dollars.

The United States continued to purchase silver. By 1934, the price of the silver market in London had doubled!Seeing this kind of market, bankers have already discovered the opportunity here. As long as they transport silver from Shanghai to London or New York for sale, they can make considerable profits. How can they let go of such an opportunity!At this time, most of China’s silver was stored in Shanghai, especially the Shanghai Concession was considered the safest place. Landlords, warlords and corrupt officials from all over the world transported their silver to the Concession for storage, because there were extraterritorial powers of foreign powers there. protection of.

At that time, the major banks rolled their accounts every night. If the general treasury was short of positions, they would notify the treasury to transfer the reserves to foreign banks and the central bank treasury.This made the bodyguards very busy. Boxes of silver dollars, hundred taels of silver bars and big ingots in the warehouse were carried out on the "iron armored cart" and transported out.The silver that enters the foreign bank is only in and out, and it is all transported away.On August 21, 1934, HSBC alone delivered 11.5 million yuan of silver to the British cruise ship "Lapulon" for shipment and export from Shanghai. [10] Driven by foreign banks, Shanghai's financial market was shrouded in a crazy wave of silver outflows.

The description of the silver wave in "Selling Shanghai Bund" written by American journalist Husse may be able to show the situation in Shanghai at that time very well: on Xiafei Road, in the ballroom at midnight, Mr. Shanghai would say hello to the dancing girl who was sitting with him. Sorry, I went to the phone booth to call his broker, asked about the market conditions of Bai Bank that day, and told him that if the market was better than yesterday, he could sell some more, and then returned to his desk, called Xi Cub popped a bottle of champagne to celebrate.Whether in the office or in the field of jokes, there is nothing but money hovering in their heads.They have abandoned their original business, their daily correspondence, and all their friends, and all they think about is money.

Foreign banks held the most silver in Shanghai, and they could act freely, and the national government could not interfere with their decisions, so they naturally became the main force of silver exports.During the silver wave, foreign banks' silver stocks changed drastically, and the silver stocks fell by as much as 85%!Foreign banks in China transported a large amount of silver accumulated in previous years when "gold was expensive and silver was cheap" to the international market for sale, while the silver deposits in Shanghai dropped from a peak of 275 million silver dollars to a minimum of 42 million silver dollars. 【11】Silver is outflowing, China's currency is "appreciated", the foreign trade deficit is increasing day by day, foreign goods are flooding the Chinese market, but China's exports are becoming increasingly difficult.The outflow of silver caused deflation at the same time, bank credit decreased, and interest rates skyrocketed. At that time, Shanghai could not borrow money at almost any high interest rate.The outflow of silver, the shortage of money, the lack of bargaining chips in the market, and the sharp drop in prices led to the bankruptcy of industries and commerce. [12] At the end of 1934, housing prices plummeted, and housing prices in the Shanghai Concession fell by 90%!People in the market were fluctuating, bank runs were widespread, and banks and banks went bankrupt. In order to prevent the large outflow of silver, the national government imposed a silver export tax, which stimulated a greater wave of silver smuggling. In the last few weeks of 1934, more than 20 million silver dollars were smuggled and exported.In order to attack the financial system of the national government, Japan deliberately smuggled silver in the occupied area. In 1935, the amount of smuggling was as high as 150 million to 230 million silver dollars.The massive outflow of silver had disastrous consequences for China's finances and economy. The drastic changes in the financial ecology have caused panic in the whole society.The National Government begged the United States to lower the price of silver purchases in the world market to reduce the serious harm caused to China by the rise in silver prices, but was rejected by the United States.At this time, the national government had no choice but to express its willingness to sell the remaining silver in China to the United States at a price negotiated by both parties to meet the silver purchase needs of the United States. Eventually, China was forced to abandon the silver standard in order to escape the economic crisis.Chiang Kai-shek's dream of monetary independence was severely awakened by Roosevelt.