In previous posts I put data recorded by Polybius (200 BC) about the prices of certain commodities one to the other, I also recorded data from Mitchell during the civil war. Today it seems that we have a repeat of tracking prices, interestingly between Food Commodities and Silver from 2008 until recently. This relationship has broken post the 5 sigma move on Gold. A large gap is forming, would the tracking return at some point one way or the other? (food tracking silver down or the other way around silver gaping up is hard to say) History does suggest so. Evidently when Silver was money, nothing happened. As Thomas Tooke mentioned over a full century, the average price of wheat only increased by 0.5% (not per year, over 100 years).
Here what we learn from Frank Tamagna.
“The monetary reform of November 1935 provided for nationalization of silver and for a managed currency. At about the same time the United States Treasury gave indications that the price of silver was going to be decreased. Foreign banks found themselves with reserves of a highly problematic value. However, as they entertained serious doubts regarding the new currency, they were reluctant to give up their silver holdings. Local conferences followed between foreign banks and officials of the Currency Reserve Board (in Shanghai, Tientsin, Tsingtao, Tsinan, Hankow, and Canton), and by the middle of January 1936 the first agreement was reached in Shanghai. Although no official statement was issued, it was understood that the Central Bank of China had agreed to issue legal tender (national yuan) notes against delivery by the foreign banks of a sum consisting of 60% in silver an 40% in securities, including bonds, stocks and debentures; to pay interest for two years on the silver delivered, and to make a deposit of equal amount at the banks turning over the silver, receiving a lower rate than the interest paid to the banks on the silver. Similar agreements were reached in other cities, and silver stocks were thus surrendered by all banks, with the exception of the Japanese, which adopted a position of watchful waiting until March 1937, when they decided to follow the common policy. The condition stipulated represented an actual premium on the silver delivered. ”
“A certain pressure on foreign banks was brought by the British Government. On November 4th, 1935 the British Ambassador in Nanking issued an Order-in-Council forbidding British subjects in China to make payments in Silver of any debt or other obligation. An embargo was placed on the white metal in Hongkong on December 5th, 1935 by a Currency Ordinance, which nationalized all the silver in circulation or in bank reserves, and set up an Exchange Fund held by the colonial government. The specie reserve of the three banks of issue, the Hongkong and Shanghai Banking Corporation, the Chartered Bank of India, Australia and China the Mercantile Bank of India, amounting to HK$ 98.9 million (Hk$ 43 million less than at the end of 1934), was taken over by the colonial government against delivery of certificates of indebtedness for the same amount. The steps taken by the Hongkong Government were in harmony with the reports of the Commission on currency of 1931 and of the Commission on Trade of 1934-1935, which had come to the conclusion that “Hong-kong is economically a part of China, and must remain on a silver standard so long as China does.” But the presence in the Far East of Sir Frederick Leith-Ross, the official British adviser to the Chinese Government, gave rise to reports that British authorities had done more than simply back China´s currency reform of 1935.”
Frank Tamagna discusses the situation of foreign banks in China before and after the currency reform of 1935.
“Silver stocks. Before the monetary reform of 1935, foreign banks used to keep their reserves in silver bars and coins; they were the money bags of the country, through which all international movements of white metal were passing. In 1921 nearly 70 per cent of the silver stocks of Shanghai was held by the foreign banks, but in the following years their importance as money-keepers was somewhat lessened, and in 1931 they held only 33% of the Shanghai Silver stock. During the two years following, as a result of spectacular inflow of silver into the vaults of Shanghai, holdings of the foreign banks rose to over 50% of the total. A reversal in trend followed very rapidly in 1934, however, when silver was exported by the foreign banks at unprecedented speed. Stocks in Shanghai were depleted until April 1935, when a “gentlemen´s agreement” between foreign banks and Chinese authorities was reached through the good offices of Dr T.V. Soong, newly appointed to the chairmanship of the Bank of China, in order to restrain the banks from making further shipments of Silver abroad. It is impossible to state how effective the agreement was, since despite the fact that little silver was left in Shanghai, the decline in stock of the foreign banks continued.l It feel from CN$ 55 million at the end of April to CN$ 36.7 million in September 1936. This decline, however may have been caused by buying operations of the Government banks, in order to cover their expanding note issue and for shipments to the interior, where the stocks had been depleted by exports and hoarding.”