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Dilemma of the Silver Standard Economies: The Case of China

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  • Tai-kuang Ho

Abstract

Exchange rate commitments implied in the silver standard originally anchored China's monetary policy and the inflation rate in the early republican period. It was believed that China's free silver standard acted as a natural check on the excessive issuing of notes by warlords and local governments. This consensus view, however, overlooks the fact that the silver standard was inherently unstable because it left no room for monetary policy to stabilize output and inflation. This article employs a formal structural model to show that a fiat currency unlinked to fluctuations in the price of silver that allows government to implement self‐adjusting monetary policies would further stabilize China's output and inflation.

Suggested Citation

  • Tai-kuang Ho, 2014. "Dilemma of the Silver Standard Economies: The Case of China," Southern Economic Journal, John Wiley & Sons, vol. 81(2), pages 519-534, October.
    • Handle: RePEc:wly:soecon:v:81:y:2014:i:2:p:519-534
    DOI: 10.4284/0038-4038-2012.240
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