The Chinese Silver Standard: Parity, Predictability, and (In)Stability, 1912-1934

Abstract

This paper assesses the debate about the demise of the Chinese silver standard in the mid 1930s. One side argues the U.S. Silver Purchase Act of June 1934 drained China of silver, which caused deflation and economic crises. A related claim is the Chinese silver standard was intrinsically unstable. These hypotheses are evaluated by estimating Bayesian structural VARs with drifting parameters on China-U.K. and China-U.S. samples from April 1912 to September 1934. We find instability in the Chinese silver standard peaked during the recession of the early 1920s and the Great Depression. Hence, neither the U.S. Silver Purchase Act of June 1934 nor a design flaw led to the end of the Chinese silver standard. Show more