Money-pox has returned.

During the time of the Tang dynasty, money could fly.

By the year 804 AD, a shortage of copper coins threatened to stifle China’s economy. With fewer coins than needed to be available, merchants throughout the realm found it difficult to conduct effective trade.

The creation of currency was the legal mandate of local and national governments. However, with the authorities failing to act rapidly enough, the merchant class of China decided to take the matter into their own hands.

Initially, they set up systems of barter to partially replace any shortfall of copper coins. Silks, rare lumber, and even fine tea became temporary stand-ins for legal tender. But these solutions were less than ideal due to the inability of merchants to collectively agree on which goods should be accepted for barter—one trader may be contented to accept a jin of fine black tea as payment, whereas another may not.

A more uniform means of exchange was required. Consequently, one was created.

Called feipiao, this “flying cash” was named due to its ability to transfer large sums of money across the vast distances of China’s empire, without having to physically transport copper coins, gold, or other valuables. They were simple paper certificates, that could be exchanged by a bearer for an equal amount of copper coins, or an equivalent value of goods.

Without the government’s involvement, China’s merchant class had managed to solve the empire’s trade problem all on its own.

The Tang government took note. Due to flying cash’s effectiveness in promoting the flow of trade, the state quickly mandated it as a legal tender throughout the entire nation.

China’s money woes had been solved. However, in time they would return.

Whereas the barter system initially implemented by Tang merchants was backed by something tangible—a good that could be exchanged for equal value—the flying money adopted by the Tang was backed by nothing more than a promise. And a promise is easily broken, especially by a government.

By 1190 AD, paper money had been commonplace in China for centuries. And so was the government’s excessive printing of it. This is exactly what happened during the time of the then-ruling Song dynasty, which led to a flood of new money entering the economy, resulting in runaway inflation.

Eventually, the Song leadership collapsed China’s economy so thoroughly, that it devastatingly weakened the empire. It was a self-inflicted wound that would lead to a Mongol-led invasion in 1235 eventually toppling the Song entirely.

This began the time of the Yuan Empire.

Under the direction of its first leader Kublai Khan, the Yuan would do away with an easily-manipulated fiat system. To renew the people’s faith in the financial system again, it would only issue paper currency that had its value backed by an equivalent amount of silver.

Once again, money would be tied to something of value. Stability would resume.

Does this story sound familiar? It should.

It’s one that’s played out hundreds of times throughout history: a government can create infinite money, it abuses that power to the detriment of the people, the economy fails, and we once again return to “real” money. Usually, one that’s tied to silver or gold.

The way governments abuse their authority over money is like a disease. A money-pox, if you will.

And wouldn’t you know it? This story of currency failure is once again playing out in China today. The only thing is, almost nobody has heard anything about it.

In Henan province, large-scale protests are causing citizens to make runs on their banks. According to reports, banks have suspended withdrawals, refused to give customers access to their own money, frozen cards and accounts, and are falsely accusing people of financial fraud to block their access to money.

This has resulted from some banks promising “no risk” high-interest rates they couldn’t deliver to customers, resulting in billions in deposits being lost due to the malpractice by the banks themselves. Actions that were only possible because they were legally sanctioned by the Chinese government themselves.

As you can imagine, the populace is furious.

The situation has become so severe, that some allege the CCP has deployed tanks in the region to protect banks from the wrath of protestors. However, like many things that originate from the fog of misinformation that engulfs China, some news outlets purport this claim to be false, while others assure authenticity.

Whatever the minutiae, it’s obvious that cracks are forming in China’s seemingly bulletproof economic armour.

But don’t start cheering for China’s financial downfall. Because as we in the West are so heavily invested in China’s economy right now, any downturn—or worse, collapse—of its economy will surely foist significant negative consequences upon us as well.

More than what’s already transpired, anyway.

The fallout from China’s Evergrande property development company already started to hit us last year, with US and European investment banks losing out on billions in bond interest payments. Primarily, because the CCP is forcing Evergrande to settle with local creditors first, before sending any money overseas.

This has affected the bottom line of firms like Allianz, Fidelity, Blackrock, and many others in the West. And considering it’s almost guaranteed your bank deposits are in some way tied to these institutions by way of your bank investing with them, it poses a significant risk to your savings, and the general quality of life the world over.

In other words, any increased financial turmoil in China will cause momentous ripples in the swampy pond that makes up the global financial system.

But here’s the thing: the less you’re personally invested in this system, the easier you’ll find it to endure any financial storm. Regardless of whether it originates from China or elsewhere.

In times of a downturn or crisis, cash, bonds, and stocks will usually be the first assets to feel the pinch. And while real estate remains generally more stable, even it isn’t immune to bubbles and busts. The 2008 housing crisis, and the weird state of the global property market right now are proof of this.

So for me, when times are turbulent, I always acquire more of the one stable asset that’s stood the test of time. The thing our civilisation always falls back on.

Gold and silver almost always endure financial flux better than other asset classes. At times when inflation has been above 3% (like right now), gold has returned an average of 15% per annum to those who hold it.

Of course, like with any asset class, it’s important not to place all your bets on precious metals. But as a safeguard against some of the economic battles the world is currently taking part in, now might be the time for you to get your hands on some. Or, some more.

(If you’re European, you might consider using Gold Avenue to purchase and securely store metals without VAT. It’s the service we personally use and trust).

From flying cash to seashells, dolphin teeth, knives, fei stones, squirrel pelts, and the paper cash we use today, the world has transitioned through many forms of money through the ages.

But when everything fails, we always end up back right where we started. We find ourselves reverting to gold or silver, or a currency directly backed by one of them. And in all likelihood, our descendants will still be doing the same, long after our physical bodies have returned to the dust.

Once upon a time, money could fly.

But it’s only the shining metals we find firmly embedded in the solid ground beneath our feet that seem to always withstand the tests of time.

Leon Hill.
Co-founder, Abundantia.

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