1 Trading Silver for Gold: Nineteenth-century Asian Exports and the Political Economy of Currency Unions+

Abstract. We examine the evolution of Asian trading volumes between 1870 and 1913, both within Asia and the rest of the world. Far Eastern countries and colonies had used silver currency for centuries. By the beginning of the twentieth century, many of them had adopted gold-exchange standards instead. Colonial powers often decided on this change in policy. We argue that adoption decisions taken by metropoles are less likely to reflect expected gains from joining a currency union, and can hence sidestep many of the endogeneity issues that have plagued the literature on trade and currency unions. We find that while silver was good for trade, joining gold was much better. Leaving silver paid handsomely in terms of total trading volume, even where former silver bloc partners ended up on different currency standards. We then ask what prevented the early adoption of gold in countries, rather than colonies, which could decide currency arrangements independently. Using a case study of Japan, we emphasize the lock-in effects that arise from the political influence of exporters