A Tale Of Two Metals
The Great Silver Squeeze of 1839 to 2025
Dear Reader: today’s column is a bit of a slog, but for those who stick with it, the reward is knowing more about the current gold/silver insanity than just about anyone else on the planet. Bonne lecture!
UPDATE 17OCT25: I thought this article was rather apropos.
On 21 January 1980, gold closed at $850/oz., and silver at $50.36/oz, numbers that would not be seen again for decades. In terms of purchasing power, that would be $3,340, and $200 in today’s toilet paper, respectively.
If you bought gold and silver at the 1980 peak, you are just now seeing a tiny $800 profit ($200 in real terms) for your gold, and you still need another $150/oz. for silver to break even.
Just to put a little perspective on things. In nominal terms, 45-year-old dollars bought a heck of a lot more groceries.
It’s been interesting to watch the metals markets over here. When I first arrived in Indonesia in 2008, silver was almost completely ignored. It was nearly impossible to buy silver—either numismatic or bullion—much less sell it. Silver was primarily a by-product of mining other metals, and generally sold only to producers of electronics.
Then suddenly, in the past month or so, silver took off. Almost overnight, silver dealers were springing up—and charging outrageous premiums, I might add. Indonesia offered an 80th Anniversary 80-gram commemorative bullion bar. Housewives were comparing notes on where to get the best deals. Dogs and cats living together!
It’s quite common for Asians to have gold in their savings stash. Many households have a sack of cash and gold tucked away, since economic implosions are a regular feature of life in these parts. However, silver fever is a new phenomenon around here. The topic comes up in 9 out of 10 conversations now, for the first time in my 17 years here.
Silver wasn’t always the “forgotten metal” in Asia. For centuries, silver dominated the Eastern economies, was the primary currency, and filled treasuries from households up to the Forbidden City. It all changed in the 1800s, with one of the most significant, yet ignored, economic events in history.
For over a thousand years, silver was the monetary metal in East and Southeast Asia. China, from the Ming dynasty onward (late 14th century), ran almost entirely on a silver-based economy. Spanish America’s mines (Potosí in modern Bolivia, Zacatecas in Mexico) produced most of the world’s silver.
This silver flowed through the Manila galleons and later the Dutch and Portuguese traders into Asia, in exchange for silk, tea, porcelain, and spices. By the 18th century, China held more than half the world’s silver reserves. Western nations, including Britain, were paying in silver for Asian goods—and running enormous trade deficits.
When the British East India Company (EIC, always the corporations) dominated Asian trade (1700s–early 1800s), they hit a wall. Europe and Britain craved Chinese tea, silk, and porcelain, but China wanted nothing from the West except silver. The British silver reserves were being drained eastward at alarming rates. By 1800, the EIC was hemorrhaging bullion to pay for tea. Britain needed a lever to reverse the flow.
The “solution” was brutal genius. Britain conquered Bengal (1757, modern Bangladesh), giving it control of India’s vast opium fields. By the early 1800s, it began illegally exporting opium to China, addicting millions and creating a new trade loop: Opium flowed into China; silver flowed out of China to pay for it. That silver was then used to buy Chinese goods legally for export. This reversed the silver flow, where once China absorbed global silver, now Britain siphoned it back through India.
Air America, anyone?
When the Qing government tried to suppress the trade (Commissioner Lin Zexu’s destruction of opium in 1839), Britain responded militarily—ostensibly over “free trade,” but in reality to protect its silver inflows.
First Opium War (1839–1842) → Treaty of Nanking: Hong Kong ceded; treaty ports opened; indemnities paid in silver.
Second Opium War (1856–1860) → further forced openings; legalization of opium; vast reparations—again, in silver.
The result of all this was China’s silver reserves collapsed, and by the late 19th century, it was forced off its long-standing silver standard and into the orbit of Western gold-based finance.
Britain’s reversal of Asia’s bullion flows didn’t stop at China. India, once a major silver importer, became a silver exporter under British rule, as the rupee was pegged to silver until 1893—devaluing against gold. Southeast Asia (the “Straits Settlements”) became part of the sterling trade zone, draining additional silver stock.
The silver–gold ratio diverged sharply: silver depreciated, gold strengthened—impoverishing silver-based economies across Asia. This monetary asymmetry helped institutionalize what economists now call the “Great Divergence”—the economic gap between industrializing Europe and the silver-standard East.
By the early 20th century, China’s silver stockpile—once the world’s largest—was gone. Britain had used the extracted silver and colonial revenue to finance its gold standard empire, City of London credit system, and naval supremacy. Opium revenues, silver bullion, and Indian taxes formed the financial bedrock of Victorian imperial power.
The irony? China’s modern foreign-exchange reserves (mostly in dollars and Treasuries) mirror, in reverse, that same dynamic—a new East-West imbalance, but now it’s paper instead of bullion.
Once Britain and its allies had gutted Asia’s silver stockpile and shifted the world’s trade settlement toward gold, the global monetary order itself began to fracture. What followed from the 1870s to the early 1900s was nothing short of a monetary coup d’état: the systematic demonetization of silver and the installation of the global gold standard.
Before 1873, most major economies were either bimetallic (gold and silver both legal tender) or silver-based. France’s Latin Monetary Union (LMU) set a ratio of 15.5:1 (gold : silver). The U.S., under its 1792 Coinage Act, used a similar ratio.
China, India, and much of Asia still ran on pure silver. This kept a broad global equilibrium — gold and silver both served as international money. Britain, notably, had already gone full-gold in 1816, making the pound sterling the model for later emulation.
The turning point came with the U.S. Coinage Act of 1873, which quietly demonetized silver by ending the minting of standard silver dollars.
Silver advocates later called it “The Crime of ’73.”
At almost the same time, Germany (flush with French gold reparations from the 1870–71 Franco-Prussian War) adopted the gold mark and dumped massive silver reserves onto world markets. France and the Latin Monetary Union suspended silver coinage in 1874. Britain’s colonies were pressured to adopt sterling or gold pegs.
The upshot was the global demand for silver collapsed overnight, while mine supply (especially from the Americas) kept growing.
By 1900, silver had lost more than 50% of its value in gold terms. This was not a market accident—it was policy engineering to consolidate financial control under the gold bloc (Britain, Germany, France, and later the U.S.).
The collapse was devastating for silver-standard economies.
In India, the rupee (pegged to silver) depreciated relentlessly against sterling. India’s colonial government had to raise taxes just to pay London in gold terms. The Gold Exchange Standard (1898) effectively tied India to Britain’s gold system.
China, still on a silver standard, suffered wild exchange-rate swings. Silver depreciation made imports expensive and exports cheap, causing internal price chaos. Western traders could buy Chinese goods for ever-cheaper silver, draining China’s wealth yet again.
Meanwhile, in Latin America and Mexico, silver-mining economies saw revenue collapse. Some, like Mexico, turned to industrial exports to survive.
In short, the gold bloc became the creditor world, and the silver bloc became its debtor zone — a pattern echoed today in the dollar vs. emerging-market dynamic.
By driving the world onto gold, Britain achieved several things:
Sterling supremacy — the pound became the universal reserve and settlement currency.
Control of capital flows — the City of London dominated world finance via gold settlement.
Cheap colonial labor and exports — silver-standard colonies’ devalued currencies made their goods cheap in gold terms.
Suppression of monetary alternatives — bimetallism, which might have decentralized financial power, was politically killed.
The “collapse” of silver was therefore a controlled demolition—an intentional re-pricing of the world’s money to favor creditors, empire, and industrial capital over agrarian and colonial producers.
The gold standard ruled from roughly 1873 to 1914, the zenith of the British Empire. The gold–silver ratio, once stable near 15:1, widened to 30–40:1, where it stayed for decades. When the U.S. abandoned gold in 1971, silver never recovered its monetary parity; the ratio today floats between 70 and 90:1. This was not “creative destruction.” It was monetary conquest—the weaponization of metal standards to enforce imperial hierarchy.
Modern gold and silver volatility isn’t simply traders chasing inflation hedges. It’s a living symptom of the unresolved contradiction Britain built into the monetary world—a paper-based credit system denominated in a scarce, non-elastic asset.
Whenever global liquidity expands faster than faith in the reserve currency, the tether snaps and metals convulse. That’s why even 200 years later, the ghost of British monetary policy still rattles the cage every time the world loses confidence in fiat paper.
And now, as Paul Harvey used to say, you know the rest of the story.
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To try to get you out of your comfort zone and into the Chinese view of the events herein, see if you can’t find The Opium War (1997), directed by Xie Jin. A lavish historical epic dramatizing Britain’s first Opium War against Qing China. It portrays exactly how trade imbalances, silver flows, and moral hypocrisy underpinned empire. If a foreign film is not your cup of tea, or you want a double feature, try Paul Thomas Anderson’s There Will Be Blood (2007), with a fantastic performance by Daniel Day-Lewis.
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As written elsewhere, China has inverted the Opium Wars most effectively with support of Mexico and Canada with the Fentanyl and related to your comment as well applying ‘get evenness’ employing returning to a potential PM based Bric’s monetary system with support of hidden stash of Gold greatly exceeding reported levels. Our ‘fantastic’ President, the great pot-stirer’ has The Great Imperial Nation’ rushing headlong into financial/social/political/emotional/spiritual etc. abyss.
I remember from my time in Vietnam that MPC, Military payment certificates, currency used by American forces in country. You could double your money, for example if I could get and exchange $1000. Dollars US greenbacks, I would receive $2000. MPC.
Not long after I returned to the “world” 1971. Nixon took us off the gold standard and refused all gold exchanges for our currency. I never considered the timing to be a coincidence.