Table of Contents
Monetary finance has always been an important battleground in international relations and a lethal weapon in trade wars, capable of dismantling a country's economic lifeline if properly utilized. The challenge to the US dollar posed by the “Renminbi oil dollar” has become a major topic in international futurology, but we can also learn from history, especially the history related to China.
The most famous example in recent times is the Plaza Accord signed between the United States and Japan in 1985, which led to the decline of the Japanese economy. In fact, more than a hundred years ago, the late Qing regime also experienced a large-scale currency war when it was invaded by foreign powers. To a certain extent, the eventual collapse of the Qing Empire was not so much a result of imperialism, democracy, freedom and other ideologies, but rather a result of the currency war. Chinese economist Xu Jin's book “The Silver Empire” and Li Longsheng's “Foreign Trade in the Qing Dynasty” are quite detailed accounts of how silver became the dominant currency, how it drove China's economic growth, and how it became a major cause of the late Qing Dynasty's decline.
Until the 16th century, China used copper as a source of general currency, until the Ming Dynasty, when copper production came to a halt, and the silver brought by the Europeans on their voyages of commerce filled in the gap. Since then, silver has been the main currency in China, used in conjunction with copper as the “silver-copper system”. In the early years, European countries traveled across the ocean to China and purchased large quantities of tea, silk, porcelain and other commodities. The trade between China and the West was in surplus for a long period of time, resulting in the golden age of silver in China.
In the 18th century, Europe imported 48 tons of silver from China, equivalent to 22 million silver dollars. It was not until 1790 that the trend began to reverse.
The mainstream politically correct account of the reversal in China naturally attributes it to the massive amount of silver siphoned off by the British East India Company through the massive dumping of opium into China, which is naturally part of the truth. But the more structural reason was that after the industrial revolution in Europe, there was the ability to manufacture textiles in large quantities, so that Chinese silk was no longer dominant, and the British colonies in India also succeeded in cultivating Assamese black tea, so that the tea market was no longer dominated by China alone. As a result, China's external trade surplus continued to shrink and eventually became a serious deficit.
In addition to the trade deficit, the silver mines in the Americas were being depleted, while the demand for silver in Europe was rising after the rise of nationalism. As a result, China's silver dollar lost its source, further aggravating the crisis. In the early Qing Dynasty, the currency inherited from the previous dynasty and used the silver-copper double-digit system, with a ratio of 1:1000. However, by the middle of the Qing Dynasty, the outflow of silver amounted to 18% of the total supply, resulting in a “silver shortage”, and the silver-copper ratio became 1:1,600.
Since the people had to pay taxes in terms of copper, they had to pay taxes in terms of silver, which made silver expensive and copper cheap. This, together with the successive wars and defeats, made the people's tax burden even heavier. However, for the government, the actual revenue did not increase, and even because many people could not pay their outstanding taxes, the government's financial strength continued to decline, and coupled with the reparations for the defeat, the national strength naturally worsened.
