James Palmer writes in "The Bloody White Baron":
It [Urga] was a trading city, where Mongols, Chinese and Russians met to exchange goods worth over a million dollars a years. Its Chinese and Russian enclaves were well established, almost entirely seperate from the Mongolian one. Urga lay at the centre of the Tea Road, the overland route to Russia, and originally the local currency had been bricks of tea, but now most traders preferred the brass cash of the Chinese, or even Mexican dollars (a common currency at the time).
From Wikipedia I got:
The Mexican peso also served as the model for the Straits dollar (now the Singapore/Brunei Dollar), the Hong Kong dollar, the Japanese yen and the Chinese yuan.[5] The term Chinese yuan refers to the round Spanish dollars, Mexican pesos and other 8 reales silver coins which saw use in China during the 19th and 20th century. The Mexican peso was also briefly legal tender in 19th century Siam, when government mints were unable to accommodate a sudden influx of foreign traders, and was exchanged at a rate of three pesos to one Thai baht.[6]
Long tied to the lore of piracy, "pieces of eight" were manufactured in the Americas and transported in bulk back to Spain, making them a very tempting target for seagoing pirates. The Manila galleons transported Mexican silver to Manila in the Spanish Philippines, where it would be exchanged for Philippine and Chinese goods, since silver was the only foreign commodity China would accept. In Oriental trade, Spanish dollars were often stamped with Chinese characters known as "chop marks" which indicated that particular coin had been assayed by a well-known merchant and determined to be genuine. The specifications of the Spanish dollar became a standard for trade in the Far East, with later Western powers issuing trade dollars, and colonial currencies such as the Hong Kong dollar, to the same specifications.
The first Chinese yuan coins had the same specification as a Spanish dollar, leading to a continuing equivalence in some respects between the names "yuan" and "dollar" in the Chinese language.
In 1889, the Yuan was equated at par with the Mexican peso, a silver coin deriving from the Spanish dollar which circulated widely in South East Asia since the 17th century due to Spanish presence in the region, namely Philippines and Guam. It was subdivided into 1000 cash (Chinese: 文; pinyin: wén), 100 cents or fen (Chinese: 分; pinyin: fēn), and 10 jiao (Chinese: 角; pinyin: jiǎo, cf. dime). It replaced copper cash and various silver ingots called sycees. The sycees were denominated in tael. The yuan was valued at 0.72 tael, (or 7 mace and 2 candareens).[4]
Banknotes were issued in yuan denominations from the 1890s by several local and private banks, along with the Imperial Bank of China and the "Hu Pu Bank" (later the "Ta-Ch'ing Government Bank"), established by the Imperial government. During the Imperial period, banknotes were issued in denominations of 1, 2 and 5 jiao, 1, 2, 5, 10, 50 and 100 yuan, although notes below 1 yuan were uncommon.
Now, I understand that currency parity is extremely convenient when trading and I know that demand for Chinese goods was so great that it ultimately led to the opium wars. Apparently the practice of the Manila galleons lasted between 1565 and 1815 so by 1913 they would have had plenty of time to spread to Urga but it seems very weird to me that Imperial authorities would tolerate the use of foreign currency (especially when traders could easily be reimbursed because of the parity) at a time when China is trading on China's terms and the century of humiliation is still off by a bit. Why wouldn't they just remint coins instead of letting foreign currencies (with foreign rulers on them) circulate freely or was it a complete non-issue to them and I am simply looking at the history of China through the narrow 19th century lense?
/u/verduns
This is a very good question. I will address internal and external factors as to how the real and peso became prominent.
In the early modern era, there were several key challenges when it comes to currency. The first is the supply of currency. There has to be sufficient supply of currency to enable trade. The second is standardization and value. It has to be the "right" value relative to goods, such that you can make payments in a particular currency without having to send wheelbarrows of them for a bag of rice, or worse have to cut them into such small quantities for items of trade. The third is credibility. Both in terms of its value, lasting appearance, and resistance to counter-feit.
Taking all of that into account, silver became the dominant currency because of the available supply (from Japan, Bohemia, and the Americas), and fortuitous policy by both the Spanish and the Chinese. The Spanish had instituted financial reforms going back to the rule of Isabella and Ferdinand that standardized silver minting and fixed its value relative to other currencies. The real, the maravedi, and the excelente were denominated in 1497.
At the same time, Ming China moved away from paper currency that had lost credibility into silver. A lot of this was their own doing, as they debased currencies. Thus, traders insisted on specie currencies, meaning the worth of the coins was determined by its weight, meaning the weight of the metal it consists of. Gold was considered too high in value, and copper was not lasting and was of too low value. In the 1500s, it is known that the primary supplier of silver into China was Japan. As the Portuguese, Spanish, and Dutch started to come to East Asia, they recognized that silver had very high value in East Asia relative to Europe and the Americas, and further that silver had higher value relative to gold there, than it does in Europe. So they used this to purchase high value goods to bring back to Europe. Bringing up the Manila Galleons you mentioned, there is still argument as to the exact relative amount of silver these provided versus directly from Japan, but it's fairly well accepted that after 1630, Japan's silver mines reduced in productivity and was eventually overtaken by silver supplies from the Americas. It's important to note that even by the mid-1500s, European vessels were already getting involved in the intra-asia bullion trade.
Over time, as the Portugal and Spain were united in the Iberian Union, the real became the international unit of trade. Even as the Union dissolved, and trade in Asia started to be overtaken by the Dutch and the English, the real persisted as the currency of choice. One reason for this was Spain's insistence on preserving the value of real, even as the strength of their empire weakened and their financial position led them to bankruptcies. After all, they had a very steady supply of silver from the Americas.
This is not to say their policies were always wise, for example see the debacle over debasement of the vellon under Philip III. Around this same period, Spain also faced significant inflation, which they addressed by policies that tended to direct silver bullions (in the form of reales) abroad. So this made the real widely available, even among their adversaries the Dutch and English. This availability was not only in the European market, but also in the East-SE Asia market via Spain's outpost in Manila. It is known that a significant portion of silver minted in the Americas ended up in Manila, to be used to supply that colony and to purchase even higher value goods to bring back to Europe via the Americas.
Re-minting coins would have been a very bad policy for the Ming and the Qing because in the 1500s-1600s they started from a position of very poor financial credibility, and that silver and gold coins were specie.
Want to know more? See Moises' The Rise of the Spanish Silver Real for a breezy overview. For more details, see Gunn's History Without Borders, von Glahn's classic Myth and Reality of China's 17th century Monetary Crisis, and Atwell's International Bullion Flows and the Chinese Economy ca. 1530-1650.