Courtesy Reuters

China Dethrones Silver

ON NOVEMBER 4 the world was startled by the news that China had abandoned the silver standard. But this step merely rendered de jure a condition which had existed in fact since October 15, 1934. It was to the connected measures [i] that foreign attention was principally drawn. Chief among them is the nationalization of the demonetized metal. If there is considerable question whether this can be carried out completely, it must be remembered that in China reforms do not bear the literal signification that they do in the West. Consequently it would be an error to look for the full execution of this decision. What, then, caused it? It is admittedly true that the American silver purchase policy helped economically to create the conditions calling for remedial measures. Nevertheless the view that Nanking's seizure of silver is to be explained solely as an answer to that policy may be only half true. The Nanking Government, in addition to its economic harassment, had been under political pressure from Japan. So the assumption of control over the principal Chinese bank reserves could be viewed with equal justice as a desperate move to bolster up the power of the Nanking Government vis-à-vis Japan. Evidently this fact, more than any alleged connivance by the British, is what has chagrined, not to say angered, the Japanese.

In a previous article [ii] the writer showed that, in putting a ban on free silver exports on October 15, 1934, China had divorced the foreign value of its currency from silver. Henceforward Chinese currency fluctuated in foreign value independently of silver. Though China thus unlinked itself from the silver standard, nevertheless the metal was still allowed to circulate internally. That is to say, the country[iii] could have been non-technically described as remaining on the silver standard internally, in that notes and metal were freely interconvertible. In this respect the act was different from the measures which the United States took in 1933 to sever the dollar from gold. In the latter case gold payments internally

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