DP14860 The efficiency of the Chinese silver standard, 1920-33

Author(s):	Nuno Pedro G. Palma, Liuyan Zhao
Publication Date:	June 2020
Date Revised:	June 2020
Keyword(s):	Chinese Economy, Exchange Rates, market integration, silver point arbitrage
JEL(s):	N15, N25
Programme Areas:	Economic History
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=14860

We test for domestic money market integration in China during 1920-1933 using a new dataset of daily domestic exchange rates. Our data concerns tael-denominated telegraphic transfers between Shanghai and three other major cities: Tianjin, Hankou and Beijing. We show that domestic markets, as measured by the efficiency of the Chinese silver standard, were highly integrated. Silver arbitrage was effective, and silver-point violations were rare. Our findings challenge claims of market fragmentation due to weak state capacity, and contribute to a revaluation of market development during China's Republican period.