Financial History 144 Winter 2023 | Page 32

familiarity and acceptability that the new British coins did not . It did not help that the Hong Kong dollar was three grains lighter in silver than the Mexican dollar . Colin James Gullberg reports there was a rumor that spread among the Chinese that they would be criminally liable if they chopped the head of Queen Victoria on the Hong Kong coins . Giving up on this monetary folly , the British closed the Hong Kong Mint in 1868 .
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The US Trade Dollar
A few factors led to the creation of the US trade dollar . The long-time discounting and melting of US silver dollars and half dollars certainly plated a role . Silver merchants paying stiff premiums for Mexican dollar coins was also significant . However , two factors left mint officials no choice but to develop an actual trade coin . They were the Mexican 12 % excise tax on its silver coins starting in 1867 , and Mexico changing its wildly successful Eagle dollar to the Balance Scale peso from 1869 – 1873 . That coin simply fell flat in China , giving the United States a window of opportunity to develop a trade coin .
The US trade dollar ( 1873 – 1878 ) was the first and only American coin created specifically for international trade . US Mint officials developed a coin that had more silver ( 378 grains ) than the erstwhile Liberty Seated dollar ( 1840 – 1873 ) and , more importantly , the Mexican Eagle dollar . It even advertised its content upon the coin ’ s reverse : “ 420 GRAINS . 900 FINE .” The trade dollar was a boon to merchants who no longer had to pay stiff premiums and an excise tax on Mexican dollars . Even more , it was not discounted as was every other US coin that was previously sent to China . In fact , it outperformed the Mexican coin , fetching a 2 % premium above the Eagle dollar in China .
However , there were problems . Even though it was created solely for the China trade , Congress made the trade dollar legal tender in amounts up to $ 5 . The price of silver was falling and the silver in a trade dollar was worth less than a dollar starting in 1876 . Unscrupulous silver merchants had trade dollars produced at the US mints , and , claiming they were earmarked for export , would distribute them to unsuspecting people at their $ 1 face value . This activity continued unabated even after their legal tender status was
A Hong Kong dollar produced by Great Britain dated 1866 , an abject failure in the China trade .
revoked in July 1876 — and the price of silver continued to drop . By 1878 , around four million trade dollars were circulating in American commerce . Thus , despite its great success in China , production of the US trade dollar ended in 1878 .
The British Trade Dollar
By 1895 , the price of silver had been dropping steadily since 1872 . The year 1893 saw America repeal the Sherman Act , which had compelled the US government to buy 4.5 million ounces of silver every month . Around that time , the mints of India ended their policy of free coinage of silver . Both events lowered the demand for silver . Most European nations had switched to a gold standard . The end of the 19th century saw most Asian nations follow
The Mexican Eagle dollar 8 Reales coin , 1862 .
suit . The notable exceptions that remained on the silver standard were Hong Kong , China and French Indochina .
British merchants in the East had been agitating for a British trade dollar since 1830 . Solicitation for a British trade dollar continued in the years 1863 , 1872 , 1876 , 1878 and 1886 . It appears that the success of the US and Japanese trade dollars , as well as the Saigon dollar , were motivating factors in the continued requests for a British trade dollar . The British government reconsidered its position on the trade dollar in 1893 . A steep contraction of the supply of Mexican Eagle dollars in the major outlets of London and San Francisco was blamed on the end of free coinage of silver at the Indian mints and the repeal of the Sherman Act in the United States .
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30 FINANCIAL HISTORY | Winter 2023 | www . MoAF . org