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Accounting for the Fall of SilverHedging Currency Risk in Long-Distance Trade with Asia, 1870-1913$
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Michael Schiltz

Print publication date: 2020

Print ISBN-13: 9780198865025

Published to Oxford Scholarship Online: October 2020

DOI: 10.1093/oso/9780198865025.001.0001

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‘On an Even Keel’

‘On an Even Keel’

Hedging Exchange Rate Risk on the Branch Network Level

(p.67) 4 ‘On an Even Keel’
Accounting for the Fall of Silver

Michael Schiltz

Oxford University Press

Drawing on descriptive evidence from journalistic outlets in nineteenth-century Shanghai, this chapter reconstructs the debate on how fluctuations in the silver price could be accommodated in bill finance. It is demonstrated that this was effectuated by means of the ‘even keel’, a management strategy arguably pioneered by the Hongkong and Shanghai Banking Corporation (HSBC). Concretely, amounts of bills bought were matched by amounts of bills sold; bankers used ‘swap’ operations (i.e., they simultaneously purchased and sold bills in one currency for bills in another currency for the same quantity, in order to offset them) in order to eliminate exchange rate risk. This is shown quantitatively by means of flow-of-funds data of the Yokohama Specie Bank. The chapter concludes with several admonitions for existing macro-historical research.

Keywords:   hedging exchange rate risk, HSBC, ‘even keel’ policy, bank management history, flow-of-funds, gold and silver

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