Thomas Tooke

Posts Tagged ‘Silver’

The Foreign banks in China in the 1930s, the money bags of China.

In Currency reforms on April 28, 2013 at 4:33 pm

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.”

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The Exchange Rate of China and the Currency reform of December 5th 1935

In Currency reforms on March 2, 2013 at 9:28 pm

Frank Tamagna wrote in 1942 in his book Banking and Finance in China:

“EXCHANGE RATE MANAGEMENT

The issue and payment of drafts in foreign currencies requires a previous operation: namely, the fixing of the exchange rate at sight and forward. In the ‘twenties the Chinese market was entirely dependent for it upon the foreign banks. The opening rates of the Hongkong and Shanghai Banking Corporation were published at 9.30 a.m. in Shanghai and at 10 a.m. in the other branches and these were accepted as the official quotations in the market.  They were expressed in sterling on the basis of the T/T rate on London, while for other currencies the London cross-rate was used. In 1930 the National Government introduced the Customs Gold Unit, an accounting currency based on a hypothetical pure gold content of 60.1866 centigrams (equivalent to gold weight of the “Sun”, the monetary unit proposed by the Kemmerer Commission), and the Central Bank of China began quoting its exchange rate in taels and yuan on the basis of the T/T rate of Shanghai and New York.

After the United States went off the gold and the exchnage rate between Shanghai and New York could no longer be used, two important changes took place. Beginning in March 1934 the exchange of the Customs Gold Unit in silver yuan was calculated according to the London rate of gold ingots on the previous day and the T/T spot rate on London. After September 1934, he daily rate of the Customs Gold Unit thus established was used for figuring the standard price of gold in the Shanghai market, on the basis of which settlement could be legally effected for incomplete forward gold transactions and “no opposition could be brought to the fore by either party”. The steps taken by the Central Bank of China tended to bring the exchange of the silver currency under its control and to restrict the opportunity for arbitrage operations, as theses were effected through fictitious buying and selling of gold bars in the Shanghai market.

The position of the foreign banks was, however, only slightly impaired by these measures, because as long as silver was the monetary unit of the country, foreign exchanges rates frequently diverged from the price of silver in gold, and these variations permitted profitable manipulations. During the period from 1931 to 1935, at first owing to the rapid decline in the price of silver and later owing to its rapid rise, foreign banks often had difficulty in obtaining at current rates forward exchange to cover their daily transactions. As a result, they increased the margins between buying and selling rates, by lowering purchasing rates or raising selling rates or both, thereby obtaining considerable profit. Cross-rate operations were in fact made not only for genuine requirements, but also for speculative purposes, especially during the rapid changes in international exchange rates. Shanghai was a typical speculative market on bullion and exchanges, and foreign banks developed into the most important medium through which such operations were carried out.

Following the currency reform of 1935 (nationalization of Silver on December 5th 1935), foreign banks liquidated most of their silver and turned the rest over to the Currency Reserve Board. The Government banks, in turn, sold the silver abroad in exchange for foreign currency. Some silver was sold in the open markets of Bombay and London, but most of it was transferred by special arrangements to the Treasury of the United States. “

Early Mining of Silver in Spain, price of a Calf in Silver 200 BC.

In Bullion and Mining, Commodities on April 23, 2012 at 11:24 pm

In his book “Histories” Polybius  reports a while ago (220–146 BC) the following:

[…]

There are very large silver mines about twenty stades from New Carthage, extending to a circuit of four hundred stades, in which forty thousand men are continually employed, who produce for the benefit of the Roman people twenty-five thousand drachmae a day. It would take too long to describe the whole process of working them, but I may mention that the alluvial soil containing the silver ore is first broken up, and sifted in sieves held in water; that then the deposit is again broken, and being again filtered with running water, is broken a third time. This is done five times; the fifth deposit is smelted, and, the lead having been run off, pure silver remains…

[…]

The translation dates back from 1889, and the author had the intelligence to translate the series of weight to the weight at the time to have an idea of  the prices.

Our blogger Polybius writes:

“In Lusitania (roughly today´s portugal), both animals and man are extraordinarily productive, owing to the excellent temperature of the air; the fruits never wither; there is not more than three months in the year in which roses, white violets (or gilly-flowers), and aspargus do not grow; while the fish caught in its sea is far superior to what is found in our waters (Mediterranean Sea) for quantity, quality and beauty. There, too of a Sicilian medimmus of barley is sold for a drachma, and one of wheat for nine Alexandrine obols. A metreta of wine costs a drachma, and a good kid or hare an obol, and a lamb from three to four obols; a fat pig weighing a hundred minae costs five drachmae, and sheep two. A talent of figs is sold for three obols, a calf for five drachmae, a draught-ox for ten. The flesh of wild animals is not thought worth fixing a price upon at all, but the people give it to each other for nothing and as a present…

A price of a Calf was about 3/4 of oz of Silver. Today the price of Calf Received according to this source, is 185 USD.

1803-1848 Gold and Silver increase in Supply. Was Gold or Silver more stable?

In Bullion and Mining on April 22, 2012 at 10:27 pm

Here we have more data about the increase in Gold and Silver during the period from 1803 to 1848 from William Newmarch using the data from John Towne Danson.


As the author writes at the time: ” The leading points of the comparison are: – that while the annual supplies of silver had only increased only 10 per cent.; the annual supplies of gold had increased by more than 200 per cent. It may be admitted that, during the interval, some changes had taken place in the value of gold as compared to silver; but the constancy of the relative value of gold and commodities justifies us in concluding, that an increase in the annual supply of that metal, from 3 1/4 millions sterling in 1800 to 10 millions sterling in 1848; had not been greeter than was required by the wants of the expanding commerce, and growing population of the world.

One of our bloggers of those days (1833) , Lord Overstone wrote:

” It may be true, though there is no evidence of the fact, that gold fluctuates more in value than silver; but there does not appear to be any difficulty in maintaining it as our standard, subject at times to some temporary inconvenience in relation to the currencies of other countries provided the issue of paper-money be duly regulated. ”

Evidently it seems to imply that there is nothing superior in using Gold as a standard versus Silver in Asia as it was the case in the XIX century.