10. Silver standard.—The silver standard exists in countries where it is enacted by law that silver alone shall be legal tender and the measure of value. China and its dependencies and some countries in South America are the exponents of this standard. The domestic trade of these countries is regulated by the bullion price of silver, but all outside transactions are based on gold, and in the end the Value of silver is thus regulated by these international transactions. The number of silver using countries is rapidly de creasing. With the exception of Japan and India, practically all Eastern nations use silver either in the form of coins or bars, and the rates of exchange rise and fall with the price of silver. Owing to the vio lent variations in these rates, business is a highly specialized one and quotations and drawing facilities on the Orient are usually provided by one of the Anglo-Asiatic banks.
11. an illustration of a country with a silver standard, we 1111.1V consider China. The ancient unit, the tael, continues to be used. A tael is actually a weight and not a coin and circulates in the form of shoe shaped slugs or small bars, and each province has a slightly different equivalent. The variation in weight in the sixteen principal kinds of tad' is from 37.5317 gr. of fine silver in the Hai Kwan tael to 34.0732 gr. fine in the Swatow tad. The Hai Kwan (or customs) tael is the most important. It is gen erally rated at 72 per 100 Mexican dollars. The offi cial tad agreed upon by treaty is the K'up'ing tael divided into 100 cents of ten mills each. This unit weighs 37.513 gr. .980 fine and contains 36.56674 gr. of fine silver. The Chinese monetary system has been still further complicated by the series of revolutions the country has been passing thru. China also has recently issued a dollar or yuan weighing 26.8567 gr. .900 fine and is considering the adoption of the gold standard. • The values of the various taels vary with the price of silver and it is impossible to give a fixed equivalent, but it is easily ascertained by multiplying the amount of fine silver in the tael by the price of an ounce of fine silver. The Shanghai tael weighs about ci oz. of standard silver (.925 fine) and is worth about 65 or 70 cents. The D'up'ing tael, for instance, weighs 1. 175625 oz. of fine silver : this at 55 cents per oz. - 1.175625 X 55 = 64.6593 cents. The Mexican dollar also circulates freely. Many of the silver coins are cut into pieces, which, in order to insure their cur rency are "chopped" or stamped as to their correct weight, etc., by some well known merchant or banker.
12. Paper money issued by a government, when adequately supported by gold re serves, is a most useful factor in the finances of a country. When not so supported it is likely to prove a curse in the long run, as all the countries that have tried it, have found. Paper money which cannot be converted into cash at its face value, but which never theless must be accepted as representing the value printed upon it, is called inconvertible paper money. Paper currency of this kind is practically a non-in terest bearing loan forced upon the public. The natural consequence is that the more of it that is is sued, the less probability there is of its ultimate re demption, and the more it depreciates in value. De
preciation means that its purchasing power as com pared with that of gold has fallen, or differently ex pressed, that prices as expressed in paper money have risen. If it requires, for instance, 225 paper dollars to purchase 100 gold dollars, gold is at a premium of 125 per cent and paper money is at 44% per cent of gold or at a discount of 55Y19 per cent; or again, 300 per cent premium, means that for 100 gold dollars you would have to give 400 (300 plus 100) paper dollars.
In this connection the following problems will be found interesting: (1) The premium on gold is 300% ; at what % discount is paper money? 300 X 10030,000 Answer: 300 plus 100 400 = 75% discount (2) Paper currency is at a discount of 75% as com pared with gold ; what is the premium on gold? 75 X 100 7,500 100 — 75 25 Answer : — 300% premium.
The modern exponents of paper money currency have been chiefly the South and Central American re publics, the majority of which, tho they are theoret ically on a gold basis, are embarrassed by large quan tities of inconvertible paper money. There has been a strong effort of late years on the part of the more progressive governments to put their currency and finances on a sounder basis. Among these may be mentioned Venezuela, Uruguay, Peru, Ecuador, Cost Rica, Salvador, Honduras, Haiti and Bolivia. The following countries are still on an inconvertible paper basis with a more or less fixed premium on gold: Premium on gold Value $100 gold Honduras 140.00% 9.40. paper Guatemala 1,500.00% 1,600. paper Chili 84.6 % 184.60 paper Colombia 9,900. % 10,000. paper Paraguay 1,400. % 1,500. paper Inconvertible paper money has no intrinsic value and its gold value depends entirely upon what the people of the country are willing to accept it for in exchange for gold, and therefore the rate of ex change between a country on an inconvertible paper basis and one on a metallic basis can only be arrived at by ascertaining at the moment the amount of gold that the public of the former country is willing to give for its paper unit.
13. Chile.—Of the paper standard countries Chile is commercially the most important.
The monetary system of Chile is theoretically on a gold basis, but the gold standard was abandoned and was replaced by a paper currency. The theo retical unit is the peso divided into 100 centavos. It should be the equivalent of 18 pence or % of Li and weigh .599103 gr. 916% fine or .54917 gr. fine gold. The present circulation medium consists of govern ment notes worth about 9%d.—equivalent to a pre mium on gold of 84.61 per cent. Chile has recently authorized its Conversion Office to issue notes against gold at a fixed rate of 12 pence per peso, which if carried out will place it on a gold exchange basis.
Export duties are payable in gold at the rate of 18 pence per peso or in drafts on London. The sov ereign is legal tender for 13% pesos (13%X 18 240d.).
Chile quotes ninety-day sight bills on London at rates fluctuating between 9i d. and lld. per paper pesos. The currency of one of these bills averages 120 days -(27 days voyage + 90 days + 3 days grace) .