Last weekend China, under relentless US pressure to end the renminbi's peg to the dollar, once again blew hot and cold by announcing that it would “enhance” exchange rate flexibility, later adding that the rate would remain “basically stable”. It is an issue that has bedevilled US-China relations for longer than most people think. In fact, the peg to the dollar was a major source of friction in the 1930s, although at the time the two sides' positions were reversed.

The 1934 Silver Purchase Act, passed under relentless political pressure from an alliance of silver producers, banker-bashers and inflation proponents, obliged the US Treasury to buy up the metal and boost its price. The practice wreaked havoc on the Chinese currency, which was tied to silver – long treasured in the country, even though there was no indigenous supply. Chinese silver stocks were smuggled out of the country and sold abroad, reducing the money supply and triggering deflation, credit contraction and a slump.

The Chiang Kai-shek government pleaded with the US to change its policy. Henry Morgenthau, the Treasury secretary, was sympathetic, as he considered the silver act a major headache. But he had little political room for manoeuvre.