The beginning of the book is about the silver standard and the background of the war. Due to YouTube policy, we can only express it as the background, you know what it is, so if you say something in the front, it shouldn't be, and we should say it's the background. We will call it the background from now on, not the side. It's the back. Got it? Nowadays, when the price of gold goes up, there is something that definitely follows, which is the price of silver. As the price of gold has hit a record high in history, the price of silver is also rising. So today, shall we talk a bit about the historical story of silver? These days, due to the fluctuating exchange rates, there are various worries that increase, right? However, as I looked at the history of silver, I witnessed several phenomena where people blindly turned to silver, the fundamental asset when trust in currency collapsed. So today, through the history leading to the silver standard and the background of the war, let's dive into this history of currency.

Let's take a look from a perspective. Ah, a call, yes. So, there may be various incidents, but today's story is about the perspective of a call. If you keep that in mind, it's good. From the perspective of money, gold and silver have been used as a means of storage and exchange together. The UK was a country that adopted the silver standard for a long time. If you bring money, you get it back, right? But the UK uses the currency unit as pounds. However, if you look at the historical context, in the past, it was based on the fact that you could get a pound weight of silver with one gold coin. So, in the end, it can be understood that the UK has been using silver as currency since ancient times. And China is the same. Anyway, to talk about the story of the war later, we need to look at the relationship between China and the UK, so we need to examine China.

Let's take a look. China is a very unique country. It is known for the first assembly in the world, which is called Kyoja. What you see on the left side of the screen is exactly Kyoja. In the 10th to 11th centuries, Chinese merchants found it too difficult to trade with heavy iron coins, so they started trading in paper form. They would give paper and later exchange it for iron. It was like a deposit certificate. This was not developed by the government but by private financial institutions. It was very convenient, so later the country adopted it, leading to the birth of the world's first assembly, Kyocho, on the right side. You can confirm this in Marco Polo's The Travels of Marco Polo. There, it says, Hey, I went to China and bought things with paper. Why buy things with paper? Gold as well.

Not gold, not silver, but paper. When you see that goods are purchased with paper now, you can realize that from this point, people started to use paper for currency. However, this actually happened during the Yuan Dynasty. The currency system of the Yuan Dynasty was not perfect. What was quite unique at that time was that they used a system somewhat similar to the current currency system. When the Yuan Dynasty used paper money, they kept gold and silver as reserve funds. They issued Gyochos (paper money) only up to the appropriate ratio of gold and silver reserves. So, whenever you bring Gyochos, we will exchange them for gold or silver. That's why there was trust in the currency. Therefore, people actually used Gyochos at that time. However, the currency system of the Yuan Dynasty was not perfect because of political corruption and the extravagance of the royal family, causing the reserve funds to decrease.

So, in the end, as the primary school increased its circulation, hyperinflation occurred, which became one of the reasons for the fall of the Yuan Dynasty. This is quite similar everywhere. In Europe, at first, kings and nobles issued money based on reserves like gold. When a war broke out, they would spend it, print more money, experience hyperinflation, face popular uprisings, and the country would collapse. This happened several times. However, when the Ming Dynasty took over from the Yuan Dynasty, they introduced the concept of replacing the currency used in the Yuan Dynasty with a gathering concept. It was so good that they immediately issued it, which was the Da Ming Tongxing Bochao. But the biggest difference between the currency used in the Yuan Dynasty and the currency used in the Ming Dynasty is that there are no reserves. So how can people trust it if there are no reserves to back the paper?

There is a very vivid example that explains clearly why they cannot believe it. In the Ming Dynasty, they paid the officials with a monthly salary called Daemyeong Tonghaeng Boro, and they received taxes in the form of grains. They don't even trust themselves. The fact that they have no reserve fund proves that they cannot build trust in the currency value. At that time, they proved this. As a result, people started to prefer silver. The reason I am saying this is that in the end, it all turns into a grave. When everyone receives silver, they all keep it for themselves. Since the currency has no value, when giving to others, they prefer to give paper, and when storing it for themselves, they keep it in silver. That's how it goes. However, as we move into the 15th and 17th centuries, with the beginning of the Age of Exploration in Europe, the path of international trade began to open up. At this time, Chinese tea, Chinese silk, Chinese porcelain, and so on.

They started to export to Europe, but because the upper class in the UK loved tea so much, there was a great demand for tea imported from China. Even now, it is said that the daily tea consumption in the UK exceeds 150 million cups. So, that means each person drinks about three cups of tea a day. With this historical background, at that time, the UK needed a lot of money for its continuous overseas expansion activities. Therefore, they began to raise tariffs on imported tea. By the late 17th century, the tariff on tea increased to nearly 100%, even doubling. However, as they implemented this high tariff policy, a problem arose - smuggling increased. Originally, the British East India Company monopolized about 30-40% of the tea supply, but the rest was smuggled. So, that was the situation in the UK.

How bad it was is that the East India Company in Britain didn't have money due to the tariffs, so what the UK did was in 1773, they established the Tea Act. The East India Company was solely responsible for importing tea from China to Britain. So, whether it was tea coming from China to Britain or from China to the British colonies, the East India Company took care of everything. One of the prominent colonies was America, and when they changed the tea policy, the problem arose. What happened was that the smugglers in the British colonies had their rice bowls taken away. Originally, the smugglers in the British colonies imported tea from the Netherlands where there were no tariffs, so they brought cheap tea and could sell it in the colonies. That's how they avoided taxes.

Yes, because of the Tea Act, the East India Company ended up consuming all the tea stock, turning people into unemployed overnight. Therefore, smugglers, discontented, boarded a ship anchored at the port and threw hundreds of boxes of Chinese tea into the sea. This incident is considered the beginning of the American independence movement, known as the Boston Tea Party. When I looked at the history before, I heard that it was a movement of independence where Americans expressed dissatisfaction with not having their own representatives. There was also the smuggling issue, leading to dumping everything due to the customs duties. That's right, this is what triggered it. Consequently, Britain implemented a tax reduction policy. In August 1784, they drastically reduced the tea tariff from 119% to 12.5%. As a result, due to the already existing Tea Act, smuggling increased.

As the volume decreased, the British East India Company came to dominate most of the direct trade between the Qing Dynasty and Britain. With the implementation of tax reduction policies, smuggling nearly disappeared. By the early 19th century, about 90% of the tea exported from China to Europe was handled by Britain, creating such a structure. However, looking at it from the opposite perspective, it can be seen that the silver in Britain was being sucked into China like a black hole. In other words, the tea in China was all going to Britain, and since they wouldn't accept paper money but only silver, Britain used silver to buy tea. So, the silver in Britain was flowing into China. With Britain handling 90% of the tea worldwide, how much silver would flow out of Britain? Another unique factor was that the silver was being sucked into China from Europe.

The exchange rate between gold and silver was different. For example, in the 16th century, the exchange rate of gold and silver in Europe was 1 to 10. However, at that time, the exchange rate in China was 1 to 6. Oh, the Chinese currency was much more valuable. So, if you brought silver from Europe to China, you could buy a lot more goods, right? That's right, including food. Therefore, the silver from England and Europe would be heavily drained into China. This is a kind of situation where silver and gold serve as currency. Currently, there is a situation where quite a bit of profit is generated. The fancy term for engaging in arbitrage trading is called hwan-chi. Well, when we look at the situation in China at that time, the productivity of silver mines was not high, so there was always a shortage of silver.

I mentioned earlier that the currency issued by the government there cannot be trusted. However, as both you and I earned silver through exports, the people did not want to give up that silver. So, once the silver entered China, it never came out, which led to China being called the tomb of silver at that time. Consequently, Britain began to suffer from a shortage of silver. Therefore, Britain made great efforts to overcome this. Britain made efforts to export its own products to China. However, in the mid-18th century, when the Industrial Revolution began in Britain, the era of the Industrial Revolution started. During the Industrial Revolution, the spinning machine was born with the steam engine. We make cotton with machines, and you make it with people. Shall we try this once? What was the result of this confrontation between the Chinese and the machines?

Yes, in the end, the people won. They didn't consider the huge population. No matter how much they produced with their textile machines, they couldn't beat the Chinese cotton fabric made from the cotton picked by hundreds of millions of people in China. Therefore, from the British perspective, no matter what they did, the silver kept running out. They wondered how to earn silver. Eventually, they found a solution. Behind, oh, behind. At that time, Britain colonized India, and India produced goods very cheaply. So, they decided to smuggle these goods to China. Britain made Indian goods into black balls the size of soccer balls, put them in wooden boxes labeled as medicine, and smuggled them to China. Why did they do that? Because at that time, in China, Indian goods were able to be circulated as medicine. It was very successful, and the amount of Indian goods imported into China was increased.

In the 1770s, the average annual export of tea was 200 chests, but by the 1830s, it surged to an average of around 22,900 chests. It increased from 200 to 20,000, which means it grew by 100 times. So, let's see if the silver that was in China actually flowed into the UK. The amount of silver held in China decreased drastically from 70 million yang in 1793 to 10 million yang in 1820. They must have spent a huge amount of silver behind the scenes. Yes, they spent a lot. As a result, people in the Qing Dynasty became addicted to opium, and taking advantage of this, the UK ended up attacking China. That was the beginning of the historical Opium Wars. So, they sold the hit product of China at the time, tea, and sucked up the silver, while on the contrary, to obtain that silver, they smuggled opium, the hit product in the back alleys.

It was a process of extracting silver again, and from China's perspective, it was a problem that addicted people were behind and it was also a problem that the silver, which now serves as the basis of currency, was flowing out. So, when they tried to stop this, a naval battle broke out in England, exerting force. So, when you look at this history, it is indeed a brutal war, but we were trying to see this event from a money perspective. Ultimately, when viewed from a monetary perspective, it was clearly discovered that when trust in currency collapses, people tend to shift to the most reliable asset. In the era of the gold standard, it was gold, and in the era of the dollar-dominated currency like today, it becomes the dollar. So, when some geopolitical risks emerge, money flows towards gold or the dollar. Coming back to the present, that's why prices are currently rising.

Is it because of the loss of trust in silver as a currency that it's happening now? But that's not the case now, right? Then why did the price of silver rise? If we take a look at that, well, currently, Mexico is the country that accounts for the largest share of global silver production due to the declaration of bankruptcy. As a result, the global production has decreased by 1%. On the other hand, the demand for silver is increasing significantly, leading to a cumulative shortage of silver over the past few years. It's called a market balance. In 2021, there is a shortage of 9.4 million ounces of silver, and in 2022, there will be a shortage of 263.5 million ounces. Even in 2023, there will be a shortage of 184.3 million ounces, and this shortage trend continues. But it's a bit hard to understand that silver is scarce. If there's no silver, you just don't use it, right? It's not like gold where if it's scarce, the price goes up. So, what's the deal with silver?

How much shortage is considered enough is a matter of how much there should be. So, what does it mean to have a silver shortage? Well, you just need to look at what the demand is. Among the modern silver demand, 60% is for industrial use. Oh, I see. So, looking at the largest part of that, it's for electronic devices. Oh, yes, there is a tremendous amount of silver used in electronic devices. But these days, due to electric cars, the demand for electronic devices has increased by 20%. And next, the high demand for industrial use is in solar energy. You can see that the demand related to solar energy has increased by 64%. People might wonder why the solar energy market is sluggish, but ironically, the installation of solar panels has actually increased. If you look at the Export-Import Bank's 2023 second-half solar industry trend report, you can see that it has already exceeded 400 gigawatts, surpassing China's 240 gigawatts by more than double, and the U.S. is [CONTINUED IN THE NEXT SEGMENT]

The installation of 3GW solar power plants in Germany increased by 85.7% compared to the previous year due to legislation. France and Spain also saw an increase of over 20%. Many people misunderstand the global solar industry as being difficult because China has lowered prices, making profitability challenging. However, the installation of solar power is growing rapidly every year. Even though companies are struggling with decreasing module prices and profitability, the high installation rate indicates a significant demand for silver, which is used in them. Consequently, when mines in Mexico go on strike, causing a decrease in production, shortages accumulate over several years. In this context, it is not easy for mine production to suddenly increase, while on the contrary, the demand for electric vehicles and solar power is rapidly rising.

There may be differences, but ultimately, it will increase in the future, not decrease. When you see things like this, right now, the price has gone up, it could be due to the increase in gold prices, or it could be due to the increase in industrial demand. The cause cannot be distinguished without data, but one thing is clear: currently, demand is far below production, which has continued for several years. You can see that, right? I understand. Well, it may be similar to the gold price, but there is also industrial demand. As much as the industry demand, which is an area where we need to invest a lot for the green transition, then, well, how can we interpret the parts where the prices have risen so much? And it seems a bit difficult in terms of mineral supply. We want to have it, but we can't just make it on the backside, right? We need to create something competitive as much as we want.

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