The Chinese Silver Download Experience

Song Chao - Chinese Coal CommunitySomewhere in 18th century Scotland, a writer is making the rationalist case against gold and silver. I’ll conjecture such a counterpoint rebuttal to precious metal coinage (and convertibility of notes) has appeared on occasion during the entire 5000 year history of gold’s employment as money, if not longer. Indeed, a modern version of the argument can be found today. You know the bullet points: gold has no earnings, no yield, cannot be valued by any reasonable metric, and is nothing more than a hunk of inanimate metal. More to the point of the rationalists is that gold has little value in use, and may actually be a religious object. Thus, gold trades in the medium of signs and symbols, and once discovered as such, will come in for a brutal puncturing. The problem I have with this argument is as follows: it’s irrational.

It would be one kind of argument to state that mud cannot be used in engineering to build skyscrapers. But  it’s another kind of argument to claim that gold and silver have faulty internal structures too, that contain the seeds of their own collapse. Physics is physics. Money is psychology. Thus, the rational argument against gold and silver, because it presumes rationality in human beings, is irrational.

We shall see of course which forms of money the world will accept in trade for such things as grains, goods, and oil in the years ahead. Or perhaps even in the year ahead.  Before World War II, in this century, that largely fell to British Sterling. Since World War II the preferred form has been the US Dollar. Both of these currencies also trade, and traded, in a universe of signs, and symbols. Indeed, they have traded as totemic accessories of Empire.

Wayne Levin, Untitled, 2004Now comes China however with its vast array of built capital stock and a great wall of monetary reserves. As I wrote in the Seigniorage Curse, the Dollar paradigm started out as a justified paper currency regime tethered to the productive and innovation capacity of the United States. But the regime wound up as a scheme to extract, not provide, value — and the multi-decade premium accorded to US purchasing power became the mechanism, in part, that hollowed out our economy through financialization. It’s not so surprising therefore that large holders of dollars–at this point in the dollar’s life cycle–would want to exchange them.

At I’ve been writing the past year about these issues with particular attention paid to the myriad ways China could convert dollars to other assets. But starting in August, both at and also in my Monthly newsletter, I began to target my commentary more frequently to the issue of money itself. China’s new September push, for example, to encourage investment in gold and silver amongst its citizens is nothing less than extraordinary. The promotion comes amidst a sense that the economic policy talks between Washington and Beijing, which surely take place on an ongoing basis, have perhaps not gone well of late. Each week brings another surprise too, from Hong Kong’s request that all its gold be repatriated from London, to today’s rumor that China will ban all exports of gold and silver.

It appears that China has decided to leverage the sheer scale of its own population, to effectively download the world’s gold and silver into a billion different hands. The ability to buy precious metals at one’s local bank, in small bar denominations, is the distribution channel. Some have suggested this policy may double as a way to dampen currency based inflation internally. If that’s the case, then the question remains whether the state will use Yuan, Dollars, or both Yuan and Dollars to carry the new inflows of metal, into the country. We await that particular answer.


Photos: Chinese Coal Community, by Song Chao. | Untitled, by Wayne Levin, 2004.