Trading Silver for Gold: Nineteenth-Century Asian Exports and the Political Economy of Currency Unions

This chapter examines the evolution of Asian trading volumes between 1870 and 1913, both within Asia and with the rest of the world. Far Eastern countries and colonies had used silver currency for centuries. By the beginning of the twentieth century, many of them had adopted gold-exchange standards instead. Colonial powers often decided on this change in policy. The chapter argues that adoption decisions taken by metropoles are less likely to reflect expected gains from joining a currency union, and can hence sidestep many of the endogeneity issues that have plagued the literature on trade and currency unions. The chapter finds that while silver was good for trade, joining gold was much better. It paid handsomely to leave silver in terms of total trading volume, even where former silver bloc partners ended up on different currency standards. The chapter then asks what prevented the early adoption of gold in countries, rather than colonies, since they could decide currency arrangements independently. Using Japan as a case study, it emphasizes the lock-in effects that arise from the political influence of exporters.