Thomas Tooke

An account on Silver embargo of 1927 in China

In Monetary depreciations, Uncategorized on February 3, 2013 at 1:13 pm

Mr Frank M. Tamagna wrote an interesting book in 1942 called ” Banking and Finance in China”. It was written under the Institute of Pacific relations. It is important to note that indeed the United States in the mid thirties did purchase some Silver. After the onset of the 1929 debacle the price of Silver plunged, which initially gave a devaluation advantage to China which was on a Silver standard, the United States though purchased large amount of Silver which had the result of suppressing this devaluation advantage a few years later. Those actions resulted in a large swings in the price of Silver. Over the long run though, those attempts were futile. Before that 1930s episode which we will relate in another post, there is the episode of 1927.

As Tamagna wrote:

“In the autumn of 1924, the opening of hostilities, between armies in the two provinces of Chekiang and Kiangsu provoked a banking crisis which involved the three important money markets of Shanghai, Ningpo and Hangchow. Some institutions failed when the native bankers associations refused support; others just managed to overcome their difficulties with the help of modern banks. Foreign banks then decided to stop any further advances of call money to native banks. The crisis was followed by a curtailment of speculative operations and by period of extreme caution. The crisis of 1924 marked a definite slowing down of the boom. In the interior of China, a series of local crises spread along with the northward march of the National Revolutionary Army, which left Canton in July 1926. During the following year, embargoes on the exports of Silver were imposed by most of the provincial governments; the depreciation of the local currencies advanced rapidly, and the native banks, especially those connected with army leaders or politicians, suffered hard setbacks. With the establishment of the National Government in Nanking in 1927 and the impulse given to the modernization of the country and the banking system, the native banks entered into an era of decline.”

The piece is anecdotal account of yet another attempt to embargo precious metals, whenever there is distress with the local currencies.  This attempt was futile as all the other ones in preventing the fall of the currency, but the policy makers have to do something so they try it anyway.

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