The US and China’s Currency: History can Teach the RMB’s US Critics a Lesson


The US has a long history of interfering in China’s currency, not always to a good end. 

As the mid-term election campaign in the United States looms, the yuan’s exchange rate is again in the firing line amid heightened rhetoric.

It’s hardly news that the yuan scapegoat has kicked in at a time when the ballot box lurks in the mind of some US Congressmen.

Over 70 years ago, their predecessors had done exactly the same thing: forcing China’s currency to appreciate against US dollar regardless of the consequences to China – or to the US per se.

Under pressure to act from domestic silver interest groups, the Roosevelt administration defied overwhelming popular opposition – from both China and critics at home – by enforcing the Silver Purchase Act in 1934.

The bill authorized the US government to purchase silver from other countries at US$1.29 per ounce, nearly three times the market price – 45 cents per ounce – on the New York Futures Exchange. This buying spree culminated in a quarter of US monetary reserves being held in silver.

For China, a country that had adhered to the silver standard since the fiscal reform undertaken by Zhang Juzheng, a scholar-official who served under the Longqing and Wanli emperors during the Ming Dynasty (1368-1644), Washington’s self-interested move dealt a devastating blow to China’s financial stability.

High silver prices in the US market lured a vast amount of silver out of China, where ingots and coins minted largely with silver had served as its hard currency for the past several centuries. This flight of silver left China in a deteriorating monetary crunch.

Chinese exports priced in dollar terms nosedived due to soaring rates caused by steeply appreciating silver.

Deflation gripped the nation and buffeted its agriculture, leaving a swath of peasantry out in the cold; businesses went bankrupt in their hundreds; the country’s financial edifice teetered on the brink of collapse.

After all measures, including levying a silver export tax, failed to stem the outflow of silver, the Kuomintang government did away with the silver standard and opted instead for paper currency in November 1935.

The abrupt end of China’s silver standard 400 years after its inception was not something American mining magnates had expected.

They had lobbied the Roosevelt administration for the silver purchase initiative on the flimsy grounds that higher silver prices would put more American goods in Chinese hands. The outcome, as we know now, belied their much-vaunted benevolence.

So had the Americans benefited from the Silver Purchase Act? As a special interest group, they might have, as silver mine owners and financial institutions like Citibank all reaped tidy profits from silver speculation.

But as an entire nation, they had paid a price highly disproportionate to the size of the silver industry, which employed only 5,000 people in 1939 but sucked US$1.5 billion in federal funds in the 15 years following implementation of the Silver Purchase Act.

What economic folly – and lack of statesmanship, one might say – it was to prioritize the well-being of 5,000 people at the expense of the American public and the 450 million Chinese who did nothing to invite this misery.

Good days were deservedly short-lived for those silver mining magnates as China’s long-term import ability was irreversibly destroyed by their mercantilism.

Had the US$1.5 billion been put into right hands, say, the US Civil Service Commission or the Public Work Administration, it could have generated enough jobs for the 5,000 people in the silver mining business, probably at a much lower cost.

Needless to say, the silver purchase bill was bad economics. But it was bad politics as well. The damage it caused extended far beyond the economic sphere. It spilled over into US-China relations.

By Mei Xinyu from

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