Global silver trade from the 16th to 19th centuries

The silver trade that linked the Americas, Europe, and China between the 1500s and 1800s grew out of the Columbian exchange and reshaped the world economy. Many historians view it as the first truly global market, with one scholar remarking that silver “went round the world and made the world go round.” While the trade spanned the globe, most of the metal ended up in China, where it was accepted as money. Beyond economic shifts, the silver trade also triggered widespread political changes during the early modern period. Several prominent historians argue that “New World mines” were the backbone of the Spanish empire, propping up its economy.

During the Age of Discovery, Spaniards found enormous silver deposits, especially at Potosí. These mines were the cheapest source of silver in the world. The Spanish turned the metal into peso de ocho coins, which they used for purchases; this currency was so widely accepted that the United States recognized it as legal tender until the Coinage Act of 1857. As demand for silver grew, new extraction methods emerged, such as using mercury to separate silver from ore through amalgamation.

In the two centuries after Potosí’s discovery in 1545, Spanish American mines produced 40,000 tons of silver. By the end of the 1700s, over 150,000 tons had been shipped from Potosí alone. From 1500 to 1800, Bolivia and Mexico supplied about 80% of the world’s silver, with 30% eventually reaching China. In the late 1500s and early 1600s, Japan also exported large amounts of silver to China and other foreign markets.

China’s hunger for silver stemmed from the failure of its paper currencies—the “Hong Wu Tong Bao” and “Da Ming Tong Bao Chao”—and the difficulty of minting copper coins. After various political changes, silver became increasingly important in Chinese markets and, by the 1540s, had become the dominant currency. Silver flowed into China in two main cycles: the Potosí/Japan cycle (1540s–1640s) and the Mexican cycle (starting in the early 1700s). Within Ming territory, silver was worth twice as much as elsewhere, giving Europeans and Japanese a huge arbitrage opportunity. This profit margin widened further because of differences in silver content between Chinese ingots and New World silver. At the same time, China earned significant arbitrage profits from selling silks, ceramics, and other goods, creating a multi-layered arbitrage system. The abundance of silver in China made it easy to mint into coins, and many tools and methods for identifying and measuring silver emerged to solve the problems of verifying its purity from the 1500s to the 1800s. This practice became so widespread that local Chinese officials demanded taxes be paid in silver, and eventually the entire Chinese economy was backed by the metal.

In the Americas, the Spanish colonization of the late 1400s and 1500s was largely driven by the search for precious metals, at a time when Europe faced severe shortages. The Spanish, like other Europeans, craved Chinese goods such as silk and porcelain. But Europe had nothing China wanted, so they traded American silver—which China badly needed due to long-running shortages—to cover their trade deficit. The two main Spanish mining colonies were Bolivia and Mexico, which together produced an estimated 100,000 tons of silver from the mid-1500s until the end of colonial rule in 1824. The richest mine was Potosí, then in the Viceroyalty of Peru (now Bolivia). In Mexico, the most productive camp was Zacatecas, followed by other sites in the Bajío region (part of the Viceroyalty of New Spain). Mexico produced the most silver overall, but no single Mexican mine matched Potosí’s output until Guanajuato, also in the Bajío, surpassed it in the 1700s.

Early in the 1500s, American silver mining relied on simple techniques used by the Incas and other indigenous peoples. But after the mid-1500s, mercury amalgamation—developed and popularized in the Americas—dramatically boosted production. From 1575 to 1590, this method multiplied Potosí’s output sixfold. The combination of mercury from Huancavelica and cheap labor from the mita rotational system made this possible. Mercury amalgamation was invented by a Spaniard in central Mexico in the 1550s, though historians disagree on the exact individual. Mercury was one of the highest production costs, since much of it had to be shipped from Almadén in Spain. The ratio of mercury used to silver produced was roughly two to one.