There is a segment from this article that I want to unpack:
The Great Depression was a global crisis—almost. Every significant economy was devastated, with one notable exception: China. The reason was simple. In 1929, the US and every other major nation pegged their currencies to gold. As the economic historian Barry Eichengreen has described, adherence to this standard punished countries by imposing “golden fetters" that led to crippling deflation. The fixed exchange rates of the gold standard helped transmit the monetary shocks around the world.
Clearly, the silver standard didn't help China in the later years, but I'm keen to understand how China's economy fared so well in these specific years: 1929-1931. When I read the above, I'm not exactly sure what the logic is. My best hunches were:
- Price of gold increased faster than the price of silver because gold is more of a "haven" asset, and thus providing China with more competitive exports
- Or, the peg to silver itself wasn't the main factor, but merely being pegged to something different than the other countries which helped China avoid the transmission effects
But after looking at historical prices of both metals leading up to and following the Great Depression, I saw divergence, but not dramatic divergence. So my intuition has been depleted.
How did the Silver Standard insulate China from the broader economic contractions?