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1. The financial revolution brought about by silver
We often see in TV dramas that heroes of the Water Margin or knights often throw a silver ingot to buy goods. But in fact, the widespread use of silver as currency in China only began in the Yuan Dynasty—the reason is that the precious metal silver is not abundant in China.
In the Song Dynasty, currency can be divided into two categories: the first category is coins, such as copper coins and iron coins, and the second category is banknotes, including Jiaozi, Qianyin, Huizi, Jiaozi, etc.
The Yuan Dynasty established by the Mongols, the world currency brought a certain impact to China. Because the Mongolian nobles hoarded a large amount of gold and silver from all over the world, these precious metals are suitable as the world’s common currency, and in order to facilitate circulation, Yuan Dynasty officials formulated a banknote mechanism with silver as the standard reserve, which can theoretically be exchanged through the Central Banknote Silver, thus ensuring the equivalence of banknotes.
As a grassroots emperor with poor economic foundation, Zhu Yuanzhang imitated the monetary policy of the Yuan Dynasty but only learned the superficial. He also issued treasure banknotes, but there was no gold, silver and silk as the value reserve standard. As a result, in folk economic activities, people could only exchange gold and silver for paper banknotes, but not vice versa. And when the finances encountered an economic crisis, the government solved it by printing unlimited money. In 1429, according to the official pricing, each banknote could be used as money of 10 Wen and silver as 0.01 taels; but in 1452, each banknote could be used as money of only Two Wen, when silver can only reach 0.002 tael. At this time, the ratio of precious banknotes to silver dropped from 1:1 to 1:500 when they were issued, and the precious banknotes were like waste paper in economic activities.
The unlimited super-distribution of currency naturally brought great pain to the people, and the wise Chinese people also found an alternative method-the common people ignored the prohibition of silver and copper issued by the imperial court in 1394, and in fact formed a silver+copper system among the people. Dual currency standard: Because of its rarity, silver is used as a bulk commodity transaction among the people. For example, silk cloth merchants in Hangzhou in the late Hongwu period all used silver as a trade settlement currency; usage in retail and micropayments.
On the one hand, the failure of the government’s monetary policy has led to no one using the legal currency. On the other hand, the spontaneous use of silver and copper coins by the people has actually caused silver to become the main currency of the legal currency. Therefore, in 1436, Yingzong ordered to relax the ban on the use of silver in the face of stagnant banknotes, and the result was that all the government and the public use silver. In 1567, Emperor Muzong of the Ming Dynasty issued an imperial decree requiring that when buying and selling goods, if the value is more than one coin, both money and money will be used, and money is not allowed to be used if it is less than one coin. This decree means that the use of silver has been officially recognized, and clearly affirmed and established the legal currency status of silver.
Almost at the same time, the Maritime Silk Road of the Ming Dynasty brought China a huge trade surplus. Spanish and Portuguese merchants continued to transport silver from the Americas to China in exchange for porcelain, silk, and gold, and then returned to Europe for arbitrage sales. This has injected a large amount of silver circulation into China, and has brought silver an excellent assist as the mainstream currency of the people. In 1545 and 1548, two large silver mines, Potosi in Peru and Zacatecas in Mexico, were successively discovered, mined and exported in large quantities, and Spain, the colonizer of South America, accounted for 83% of the worlds precious metal mining. In the 25th year of Wanli (1597 1999), as much as 300 tons of silver were transported from America to the Ming Dynasty. There are many records of this in historical materials. WL Schultz recorded in Manila Merchant Sails that the Spaniards complained many times that Chinese merchants transported almost all the silver from New Spain away.
In the case of sufficient supply, silver has temporarily lost the blemish of very little production in China, and its own advantages have begun to play out:
Silver is small and corrosion resistant, making it easier to preserve. And grain, copper, and embroidered banknotes will all rot Because the total amount of silver is limited, the unit value of silver is higher than that of treasure banknotes and copper coins Silver is easy to divide. It can be made into silver ingots for large settlements, or divided into small parts for retail payments.
When the economy of the Western world was booming enough (the bull market during the period of great geographical discovery), the sufficient supply of silver to the Chinese market led to the widespread use of excellent stored-value currencies and excellent retail currencies as dual currencies. That is to say, silver and copper coins are not substitutes, but complements in economics. Copper coins actually become the silver standard (unstable) payment currency.
Silver is primarily used in the wholesale market and as a medium for large transactions. (bribery, commodity trading and delivery) Copper coins are mostly used in the retail market and daily wage settlement. The government of the Ming Dynasty changed from strictly prohibiting the use of silver to making it the official currency
The poor monetary policy of paper money and the influx of silver led to the fact that both folks and officials in the Ming Dynasty finally used silver as the official trade currency settlement unit.
The financial technology revolution of more than 150 years from the early Ming Dynasty to the Wanli period made the government start to move. When financial innovation is arbitrage-oriented, regulation begins to take action in an attempt to eliminate arbitrage opportunities by the central government.
If you travel to the Ming Dynasty, you will find that your living burden is very heavy: there are two basic tax components.
One is the land tax, which is paid according to the output of the land you hold. If the land grows rice, you must pay a certain amount of rice every year;
The second is corvee, that is, the contribution payment that individual citizens need to pay, but in fact corvee is more subjective and random, it is difficult to accurately judge how much tax each citizen should pay for the output, and when it is time to pay the tax, he can Catch the tax base.
However, due to the underdeveloped taxation technology in the Ming Dynasty, the government could not accurately collect the tax stipulated by the law.
After Zhang Juzheng came to power in the Wanli period, he gradually implemented tax reforms: One Whip Law, which attempted to combine land tax and corvee into one, and split each person into mu, apportion corvee to each mu of land, and divide the land tax into one mu. The tax in kind was converted into silver, and the monetization of silver was finally completed. So far, Chinas land tax system has entered the stage of currency tax from the stage of tax in kind.
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When silver became the government reserve currency, the disadvantages appeared. When the exchange rate between silver and copper coins changes dramatically, it will have a great turbulent impact on peoples livelihood, which eventually accelerated the economic crisis in the late Ming Dynasty and the demise of the Ming Dynasty.
The Ming Dynasty officially stipulated the exchange rate between silver and copper coins during the Jiajing period, and there has been an official exchange rate for silver and copper coins since then. However, common people in the Ming Dynasty used copper coins daily, and used silver when paying taxes. The cost of silver casting and transportation was different in different regions, which naturally caused the official exchange rate between silver and copper coins to continue to lag behind the changes in the off-site exchange rate.
As outlined above, China’s domestic silver production is not much, so the supply of silver is basically affected by the world’s silver production and the economic prosperity of other major Western countries. Especially after the implementation of the One Whip Law, silver became the official reserve currency of the Ming government:
When there was a net inflow of overseas silver, silver depreciated and copper coins appreciated. The Ming government hoarded silver through taxation, and the depreciation of silver was faster than the governments tax increase, which actually caused the effect of tax reduction, and the government passively realized it. Stimulative monetary policy.
Once the domestic silver circulation decreases (for example, due to seclusion, overseas economic crisis, reduction of overseas silver output, increase in demand for silver in other countries, etc.), the economy of the Ming Dynasty will fall into an economic depression caused by monetary tightening, and the appreciation of silver and the depreciation of copper coins will cause cause a chain reaction.
When silver is in deflation, the government still collects silver, and the people can exchange grain into silver every year, which decreases, and the tax burden actually increases. However, the silver holders who are capable of hoarding silver are mostly local gentry and government officials. The crazy hoarding of silver has led to a decrease in actual circulation, and the government cannot detect it and cannot complete economic regulation through taxation. This has led to the strengthening of the Matthew effect of social wealth and the aggravation of life difficulties at the bottom. Based on 1 and 2, the peoples anti-risk assets are greatly reduced, resulting in natural disasters and man-made disasters, which easily directly turn the economic crisis into a social crisis, and peasant uprisings increase, destroying the foundation of the agricultural society of the Ming Dynasty.
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In PlanBs famous 2019 article Modeling Bitcoin Value with Scarcity, the author established the well-known S2F Bitcoin valuation model based on the following assumptions:
Bitcoin is as scarce as gold and silver
More unforgeable than precious metals
high output cost
infinitely divisible
high unit value
It is easy to store and even has almost zero damage over time. Because the distributed ledger will lead to the permanent existence of BTC
The stock-to-flow model is an indicator used to measure scarcity. It compares the stock of scarce items with the increase in a certain period of time in the future. The higher the S2F, the slower the increase and the scarcity of the item. Its almost impossible to get a high S2F for common goods, because whenever someone hoards them, the price goes up, causing production to go up and the price to go down again. It is difficult to escape this trap.
Image source:
Image source:https://medium.com/@100trillionUSD/modeling-bitcoins-value-with-scarcity-91fa0fc03e25
While BTC holders are recharging their beliefs against this picture, I hope to make a warning message through the story of silver in the Ming Dynasty:
Bitcoins 10-year value discovery, like silvers replacement of banknotes and copper coins, is a bottom-up financial innovation.
When Bitcoin is widely used, it will actually form a multi-currency effect with legal currency in some countries. That is, bitcoin (silver) is the currency reserve, and legal tender (copper coin) is the payment tool;
When the trend is unstoppable, some governments will accept financial innovation and start tax consolidation based on the new currency base;
In the early stage of tax consolidation, peoples livelihood and economy will be greatly improved, and the economy will prosper;
However, when factors such as the reduction in supply that cannot be changed by the blockchain, the hiding wealth among the people caused by the strong hiding of BTC, and the price surge caused by the S2F effect are combined, BTC (the major premise) that has become an official bank may It will induce a social crisis like the economic crisis in the late Ming Dynasty.
However, even though we have seen stories spanning decades, unfortunately we can’t prepare for it. After all, once a trend happens, it is difficult for anyone to be a car, and can only accept the wheels of history.
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About Phala
Phala Network is dedicated to solving the trust problem in cloud computing. The blockchain implements a trustless cloud computing platform, but the computing services deployed on the chain have to give up the confidentiality of data. Phala Network uses hardware privacy computing technology to realize a confidential smart contract that supports data confidentiality, is universal, easy-to-use, and linearly expandable, thus becoming the basis of zero-trust cloud services.
Phala Network utilizes Polkadots cross-chain capabilities to become a data security layer for other blockchain applications, such as DeFi transaction positions, transaction history confidentiality, DID private data joint calculation, and light node cross-chain bridges. Phalas high-performance contracts make it possible to build a private computing cloud, providing trustless serverless computing services for high concurrency and big data analysis. Cloud products under development include Web3 Analytics, a decentralized Google Analytics replacement, and more.
