China's Hard-Money History
Until recent centuries, the Chinese people were disconnected from places in the world such as Europe and Africa. China was either unknown or considered very distant from Europe and Africa; few ships attempted to explore that far. Most Chinese people were not familiar with Western civilization, just as few in the West were familiar with Chinese civilization. In fact, the word "China" in Chinese is Zhong Guo, meaning "center" (Zhong) and "nation/land" (Guo). Chinese people believed that their land was the center of the world, not out of arrogance, but rather out of unawareness of the rest of the world. (In fact, other civilizations had a similar conception, as seen in the word "Mediterranean" whose etymological root is medius, meaning "sea in the middle of the earth.")
Trade and commerce between the Chinese and the people of Europe was very minimal until the 1600s. But despite being relatively isolated from each other, the people of these two far-off lands all adopted identical ways for conducting commerce — they used gold and silver as the preferred medium of exchange. Most importantly, gold and silver did not circulate throughout China by edict of the emperor or some central authority. The Chinese chose gold as their money because gold and silver have moneyish characteristics. They are already generally desirable and acceptable in exchange, divisible into small quantities without losing pro rata share of value, durable for long periods of time, impossible to counterfeit, and portable, for which quality they have a high value per unit of weight. It was for these same reasons that people of Europe, Africa, India, and most of the world also voluntarily used gold and silver as their primary monetary units.
In order to adequately analyze Chinese history and its relationship to money, it is important to understand the language system. The Chinese writing system dates back thousands of years and is embedded in the culture. This great land, approximately the size of the United States, consists of numerous ethnic groups with hundreds of disparate spoken languages and dialects. Everyone, however, shares the same system of writing.
Within this complex system of interwoven strokes, characters, and subcharacters also lies enormous overlap amongst characters, some of which represent two, three, four or five meanings. In fact, the most widely circulated English to Chinese dictionary in Taiwan (Far East 3000) describes the Chinese character 金 (Jin) as having the meanings "gold," "golden," "metals," and "money." This Chinese character, which has existed for thousands of years and is deeply rooted in the Chinese language and culture, also appears as a subcharacter for other words/characters in the Chinese language: cash (現金); coin (錢幣，鑄幣); silver (銀); amount (金額); banknote (鈔票); treasury (金庫); wallet (錢包); wealth (錢財); and bank (銀行).
As the language system evolved over thousands of years, new words and variations of words formed. As with almost all languages, there was no central authority that dictated or orchestrated the formation or evolution of the language. The Chinese system spread through spontaneous order. Similarly, people in different towns using different languages with different belief systems and different traditions all adopted the same written system, and they all spontaneously adopted gold and silver as the preferred medium of exchange. There is no greater evidence for the amount of importance that the Chinese placed on gold than the written language system itself.
So deeply rooted in the culture were gold and silver that the Chinese people upheld a metallic currency longer than all Western nations, even though their currency was consistently destroyed, manipulated and confiscated by governments up until the 1940s, when they ultimately reverted to paper. In fact, a major factor for the runaway inflation that took place at the very end of Cheng Kai Shek's rule in the 1930s was triggered by the silver coins that had been soaked off the Chinese market. The silver was brought over to the United States under President Franklin Delano Roosevelt's "Silver Purchase Act." The ensuing paper currency system was untenable and led to widespread economic instability that undermined Shek's legitimacy as ruler and caused many of his supporters to shift allegiance to Mao Ze Dong and the Communist Party.
In a manner similar to most Western political leaders of the 20th century, Chinese Communist Party (CCP) Chairman Mao Ze Dong also used his power to deprive people from choosing their own currency. Chairman Mao was an ardent proponent of a Marxist/communist state where no capital exists and no property is privately owned. On inception as leader of the CCP, one of the first items on his agenda was to vicariously debauch the currency by debauching the language system itself.
In 1952, Chairman Mao pushed forward his initiative to completely transform China's written system.. Although many parts of the modern world still use the traditional Chinese written system, throughout the 1950s Mao pushed very hard to implement his new simplified Chinese written system. The ostensible objective of this transformation was to create a system easier to learn and use. Proponents of the new system believed that the traditional system was too complex, time-consuming, and antiquated. Western writing systems were perceived as faster and more convenient to use in everyday life.
After the government-imposed transformation was completed, the two writing systems remained quite similar, but many characters and subcharacters (or particles) were reconfigured to the point that many modern-day Chinese citizens cannot discern the origins of the characters. For example, the character 幾 (a few) was transformed to 几. The CCP also demanded that the particle for "gold" (金) that exists as part of countless different words and characters be mutated to a completely different structure. The original character consisted of eight brush strokes and became simplified to a character of five brush strokes, as seen in the modern-day common word for money — 錢 changed to 钱 — another instance of money being destroyed by government force.
After 25 years in power, Mao Ze Dong left his position as CCP chairman, but he did make sure that his memory would remain by leaving behind statues, memorials, and his face on the middle of the 100元 (yuan) bill, as many kings and political leaders have done all throughout history. Control over citizens' money has always been the most sought-after power of kings, emperors and tyrants.
However, the Chinese people have not completely forgotten about the importance of gold as part of their culture. In recent years, the Chinese have emerged as the world leader for gold mining. Also, in May, "the World Gold Council said in a quarterly report that Chinese buyers overtook Indians as the globe's biggest purchasers of gold in the first three months of this year. Despite producing nearly 351 metric tons of the metal in 2010, China's gold demand last year hit 700 tons, meaning the country may continue to absorb bullion imports."
Since the Chinese economy began to move away from communism in 1979, they have also witnessed a period of unparalleled economic growth. Although far from a purely free-market economy, the Chinese have begun to enjoy some of the benefits of their new economic model. Specifically, they are allowed to own property, which is something that was antithetical to the CCP agenda under Mao. As part of this new privilege, Chinese citizens have rushed to buy hard assets such as homes and cars. Gold and silver are also desirable to Chinese citizens, as witnessed by recent activity in the market, but the government still prints and circulates paper money emblazoned with the face of none other than Mao Ze Dong.
Government-controlled paper money is anathema to a truly free market. Paper money has been manipulated by governments and emperors across the globe all throughout history. Over the past few centuries, central banks have secretly imposed a hidden tax on their citizens by printing paper money and destroying the savings of the paper holders. As the Chinese people continue to covet gold and embrace other aspects of free-market capitalism, they should revert back to their deeply rooted history by allowing precious metals to circulate more freely throughout the economy and reject the paper notes imposed upon them by the Chinese Communist Party.