The Gold-Exchange Standard

A Coin for China? The Monetary Standards Debate at the End of the Qing Dynasty, 1900–1912

“…It originally evolved as a way for imperial powers to bind the gold currency of the home country with newly won territories in Asia that used silver. At the simplest level, this arrangement involved the creation of “a gold standard without gold currency” (Laughlin, 1927: 645). Instead, the “currency media used in internal circulation are confined to notes and cheap token coins, which are made to act precisely as if they were bits of gold by being made convertible into gold for foreign payment purposes” (Keynes, 1913: 12).…”

“…The exchange bureau then drew a bill ordering the payment out of the gold-exchange fund. When a foreigner wanted to buy goods in the gold-exchange country, the opposite transactions took place and silver token coins were released in the country (Laughlin, 1927: 645–46). At a broad level, the gold-exchange standard has the following principles: token coins with a higher face value than the market value of the bullion content which creates seigniorage profits, the absence of free coinage, a limited quantity of coinage in circulation, and strict convertibility of the coins into drafts on the reserve fund (Laughlin, 1927: 660).…”

“…However, some criticized the gold-exchange standard on the grounds that its proponents emphasized that the value of the “coin is determined by the quantity in circulation, as demanded by the obsolete quantity-theory” (Laughlin, 1927: 660). According to this assessment, advocates of the gold-exchange standard overlooked the impact of the balance of trade on the level of a country’s gold-reserve fund.…”