US pressure on China's currency: Milton Friedman and the silver episode revisited

Post-2003 US pressure for Chinese currency appreciation has met with concerns regarding the possible impact on China's economic growth and vulnerable financial system. Such pressure was transmitted in a more tangible form in the 1930s under the post-1933 US silver purchase program. New empirical evidence suggests a significant link between the policy-induced driving up of US silver prices and Chinese price and exchange rate levels. Credit shortages, especially away from the Shanghai financial center, appear to have accompanied the silver-induced price declines and exchange rate appreciation and bad loans tied to declining real estate values also became a problem as China's deflation intensified after 1933. It seems that US pressure for drastic exchange rate appreciation did real harm in the 1930s and this history hardly encourages acceding voluntarily to such pressures today.