Page 26 - Chinese SIlver By Adrien Von Ferscht

Portuguese. As with world trade, silver was the main cargo and China was inevitably the
final destination.

The Dutch and English East India Companies have, for centuries, had us believe that it
was Europe that fired the engine of Asia. The reality was exactly the reverse. Had China’s
unquenchable thirst not existed, neither would these two companies. To compound
matters, China produced luxury items the West couldn’t get enough of, namely porcelain,
silks, tea, paintings, lacquerware, metalwork and ivory. Since its inception, world trade has
always had potentially unfortunate side effects, trade imbalance being one of them.

Towards the late 16th century and into the early 17th century, the exchange rate for gold
against silver in Spain was between 1:12 and 1:14. In China the rate was between 1:5 and
1:7. This clearly demonstrates that silver had an intrinsic value double that of Europe
within China. Such a divergent value of a single commodity creates exceptional prospects
for what is known as “profitable arbitrage trade”; trade that profits by exploitation of price or
value differences of identical or similar financial instruments on different markets or in
different forms. In some ways, China was utilising a financial strategy that is not far from
being what we recognise today as a “hedge fund”!

Mexico tried in vain to limit the amount of silver being shipped to China trying to keep it in
the region of 150 tons annually. They more or less achieved this, however it is generally
estimated that in excess of 300 tons annually was managed to be smuggled out and
onwards to China. Manila was shipping 50 tons annually. To put this into some
perspective, fifty tons of silver is approximately the average annual exports to Asia
by Portugal, the Dutch and the English East India Companies combined in the 17th
century.

One cannot help wondering how different the picture might have been had the once Ming
maritime fleet not come to an abrupt halt when it did. The Dutch and the English East India
Companies might not have succeeded!

The Spanish monarchy was to reap the most benefits from New World silver mining by
imposing an initial 20% tax on the gross value extracted at source. They then levied further
taxation on precious metals entering Seville en route for China of 27%. Mining profits
provided the fiscal foundation for the Spanish Empire. Without China’s incessant need for
ever-more silver, Spain would not have been able to finance a series of wars [some
simultaneously] with the Ottomans, Protestant England and Holland, France, the New
World as well as Asia, not to mention against the indigenous population in the Philippines.
China, unwittingly, changed the balances of power within Europe simply by its hunger for
silver.

The amount of silver pouring into the Ming treasury was in the region of $190 billion
in today’s values. The Ming dynasty was responsible for over 30% of the entire
world’s GDP.

But New World silver was not the only source of raw silver for China. A succession of
Emperors had been adamant that apart from silver, the West could offer nothing to China.
Not only did they not import anything, but successive Emperors insisted that in order to
trade with China for the luxury items the West sought payment could only be made using
what have become known as Trade Dollars. They were also part of the eventual catalyst
that gave birth to Chinese Export Silver, with much of this coinage being melted down into
sycee [ingots - yuánbǎo ] which in turn created the general accepted assumption that
most Chinese Export Silver is .90 fine.