The Global Silver Standard from the 16th to 19th Century
Prior to China becoming the Communist/Fascist monster that it is today, it was once the net beneficiary of a global silver trade where the majority of the silver ended up in its domestic economy. What started in the New World as one of the largest extractions of silver in history that helped fund the growth of the Spanish Empire, ended up creating the closest thing to its time to a global trade system, or globalization as we call it today. The problems of two countries, and arguably the known world at the time, were solved by providing Spain and greater Europe with a globalized Spanish dollar, called the piece of eight or doubloon in slang. The doubloon provided Spain and Europe with a way to purchase Chinese goods, and provided China with badly needed silver to back its currency and fund the growth of its own internal economy.
China was the inventor of currency in its paper form where it would print the image of precious metal coins on the paper money itself. Geographically speaking, China lacked access to precious metals resources within its borders to back the paper money it created. Prior to China’s global goods for silver trade that was established with the Spanish and other European nations, nearly all of the precious metals utilized by China had been acquired via trade as very little could be extracted locally. This limited the money supply in China and consequently its ability to grow its internal economy.
The Spanish settlement and extraction of silver from New Spain through the conquest and colonization of the Aztec, Mayan and other Central and South American civilizations starting in the early 1500’s resulted in a dramatic expansion of the money supply and enabled the Spanish Empire, along with other European countries on the effective silver standard who traded with Spain for silver , the ability to purchase and import rare and foreign goods from all over the world for their citizens. The Spanish set out to find gold, but ultimately found very little as they were looking in the wrong places and instead found massive amounts of silver. While silver was always valued since at least the times the Greeks started mining the Mines of Laurion, its discovery in such massive amounts in the New World had profound effects on world trade and its importance for three to four centuries to come.
What evolved to solve the problems of China, Spain and Europe’s problems was a globalized money extraction and trade system. The system started in New Spain, particularly around the mines of Potosi in modern Bolivia. The silver extracted there was shipped by Spain to the New World if it could evade the treacherous waters and pirates that attempted to intercept them in the Caribbean. From Spain the silver was traded with or lent to British and Dutch merchants who had established trade routes with China. The Dutch and English merchants shipped the silver to China and returned to Europe with the prized goods from China at the time, primarily porcelain, silk and spices. From 1500 to 1800, Mexico and Peru, then New Spain, produced about 80% of the world’s silver and approximately 30% of it eventually ended up in China. The large amount of coinage flowing into China in global trade allowed the Chinese the ability to mint their own coinage which aided their country’s internal economic growth and development.
Analysis: Spain’s discovery of massive silver deposits in New Spain facilitated the growth of a global silver standard that effectively stretched the globe and solved the problems of many countries at the same time. Besides demonstrating that there are historical examples of multiple centuries of the world trading on a global silver standard, or a hard money monetary system, this historical lesson also demonstrates the underlying importance and intrinsic value of silver to humanity that transcended numerous cultures, religions, and political systems. Even under China’s paper money system, it knew that its currency would have more intrinsic value internally if it backed it by silver.
Contrast this historical monetary system based on silver with that of today where the global reserve currency in the USD is composed of unbacked cotton pieces of paper that represent debt that are created at will by a private institution that effectively answers to no one, despite the claims to the contrary by the powers-that-be that are funded (bribed) by that private institution. At a time when the globe faces a massive monetary crisis resulting in growing crippling inflationary forces due to central banks that have burdened the world with unsustainable fiat debts and flooded it with massive amounts of fiat currency, which system looks more sustainable and honest?
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