Changes In The Purchasing Power Of Silver In Modern China And Its Impacts (1800-1935)

In ancient China, the output of silver was very low. Therefore, gold wasconsidered as upper money and copper as lower money in the Qin Dynasty. However,huge amount of gold suddenly “disappeared” in the Eastern Han Dynasty. The papercurrency which had developed slightly in the Song and Yuan Dynasty had been afailure in the Ming Dynasty because of its continuous depreciation. Yet thedevelopment of society and economics requires that the currency should be suitablefor large transaction and carried distantly. In the international trade, China started touse silver as its currency due to foreign influences. The external supply of silver isvery significant in modern China, which can be seen through the following features:First, the major production of silver took place in Americas and controlled by thecapital of the US and the UK. Second, the pricing power of the silver in the world wasunder the control of the brokers in London and New York. In addition, it wasinfluenced by the governments of the US, the UK and India. Third, the outflow orinflow of Chinese silver was dominated by foreign businessman or foreign banks.Hence, the process to establish the silver standard system in China was very slow andfragile. Worse still, its silver standard system was established after liang wasabolished and yuan was applied. Yet this system last only two and a half years.Due to the external supply of silver, the purchasing power of silver in modernChina is closely related to that of the world and their correlationcoefficient(1800-1935) amounted to0.92. When global silver was expensive(i.e. thepurchasing power of silver or the price of silver was increasing), Chinese silver flewout. In modern China, several outflows of Chinese silver took place when the price ofsilver(or the purchasing power of silver) had increased by over10%. In modern China,overall or for most of the years, the unique double surplus of silver and trade wasresulted from the external supply of silver.The analysis of the data shows that the increase of the ratio between silver andcoin in the first half of the19thcentury was closely related to the increase of the purchasing power of silver. The correlation coefficient between the two sequencesfrom1801to1845amounted to0.95, which indicated that the correlation between thetwo sequences was highly positive. Its coefficient of error correction terms was-0.884529, which means that the two sequences were very possible to decline afterthey had deviated from the long-term stable trend in the short term. In this period, theprice of goods in terms of Chinese coin fluctuated slightly and the increase of thepurchasing power of Chinese silver was the regional reflection of the increase of thepurchasing power of global silver. Therefore, the long-term increase of the ratiobetween Chinese silver and coin in the first half of the19thwas because the silver wasexpensive and not because the coin was cheap.The ancient Chinese taxation system experienced a transition from population toland and a change from labor to rent in kind and to rent in money. The taxes in kind inthe agricultural society were levied in accordance with what the peasants had obtained.In addition, its amount might be adjusted through famine relief policies. The taxes ofthe Qing Dynasty were mainly levied in the form of money. However, the governmentwas not aware of the influence of the purchasing power of silver upon peasant’sincome and taxes. Furthermore, no matching system was designed. In the periods ofJiaqing and Daoguang, there were two great increases of the purchasing power ofsilver. However, tax amount was not modified, which intensified peasant’s burden andled to two peasant uprisings. In the late years of the Qing Dynasty, the purchasingpower of silver declined and the increase of total amount of taxes was lower than thatof silver price. Therefore, peasant’s tax burden was not intensified.