Table Of ContentHOW CHINA
IS BUILDING
A GLOBAL
CURRENCY
THE PEOPLE’S
M NEY
PA O L A S U B A C C H I
THE PEOPLE’S MONEY
PAOLA SUBACCHI
THE PEOPLE’S
MONEY
How China Is Building a Global Currency
Columbia University Press / New York
Columbia University Press
Publishers Since 1893
New York Chichester, West Sussex
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Copyright © 2017 Columbia University Press
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Library of Congress Cataloging-in-Publication Data
Names: Subacchi, Paola, 1962- author.
Title: The people’s money : how China is building a global currency / Paola Subacchi.
Description: New York : Columbia University Press, [2017] |
Includes bibliographical references and index.
Identifiers: LCCN 2016009131 | ISBN 9780231173469 (cloth : alk. paper)
Subjects: LCSH: Foreign exchange—China. | Renminbi. | Finance—China. |
Monetary policy—China. | China—Commerce.
Classification: LCC HG3978 .S83 2016 | DDC 332.4/50951—dc23
LC record available at https://lccn.loc.gov/2016009131
Columbia University Press books are printed on permanent
and durable acid-free paper.
Printed in the United States of America
c 10 9 8 7 6 5 4 3 2 1
Cover design: Mary Ann Smith
Cover image: © Getty Images
CONTENTS
Preface vii
INTRODUCTION
1
1. MONEY IS THE GAME CHANGER
9
2. CHINA’S EXTRAORDINARY BUT STILL
UNFINISHED TRANSFORMATION
29
3. A FINANCIALLY REPRESSED ECONOMY
49
4. CHINA: A TRADING NATION WITHOUT
AN INTERNATIONAL CURRENCY
69
5. LIVING WITH A DWARF CURRENCY
85
6. CREATING AN INTERNATIONAL CURRENCY
99
CONTENTS
7. BUILDING A MARKET FOR THE RENMINBI
117
8. THE RENMINBI MOVES AROUND
137
9. MANAGING IS THE WORD
153
10. THE AGE OF CHINESE MONEY
173
Notes 191
Index 227
vi
PREFACE
“China, the largest nation in the world, remains both an enigma and a
potential factor in world stability.”
CHINA: A REASSESSMENT OF THE ECONOMY
W HAT CAN A non-Chinese person add to the debate on China’s
development? As I was writing this book, I asked myself
this very question several times. A Chinese friend of mine—
a fine observer of both worlds—offered a reassuring answer. Quoting an
old Chinese saying (“The foreign monk is better at reciting the sutras”)
he claimed that, like a foreign monk, I had the advantage of being more
detached than the insiders from the day-to-day discussions and so, perhaps,
stood a better chance of grasping the full picture of China’ s vision for the
renminbi (which means, literally, the “people’s money”). And in the spirit of
a foreign monk, who brings together the insiders’ knowledge and connects
all the dots, I started to research and then write The People’s Money.
Why the renminbi? Because money and finance are the missing bits
of China’s extraordinary transformation that began almost forty years ago
when Deng Xiaoping launched the first economic reforms. China’s rise has
surprised and fascinated many people around the world. Today its economy
is one of the world’s largest, competing with the most advanced countries.
But it retains many features of a developing economy, from the low income
per capita to the limited international use of its currency. To become an eco-
nomic and financial heavyweight China needs to have a currency that can
be used in international trade and finance and that non-Chinese savers and
investors want to hold in their portfolio.
PREFACE
What China is doing to transform the renminbi into an international
currency and to reform its banking and financial sector is not a linear process.
There is so much trial and error, and so many interconnected components,
that the whole picture of China’s strategy inevitably looks blurred. But there
is a picture there—one that the rest of the world must discern to understand
China’s future. In The People’s Money I try to assemble this picture by decod-
ing official documents, analysing numbers, bringing in anecdotal evidence and
factoring in formal and informal conversations—including the nods and winks
from officials who cannot acknowledge explicitly what the grand plan is.
This book presents my current understanding of China’s “renminbi
strategy” that, if it is successful, should usher in the age of Chinese capi-
tal and contribute to building “a moderately prosperous society” by 2020 as
spelled out in the country’s Thirteenth Five-Year Plan. I have tried to bring
together all the policies that have been implemented since 2010 to assess the
long-term plans while also offering an overview of China’s recent economic
history, because to understand current developments it is critical to look at
where China comes from. Past developments and current events provide
the framework to pin down what is in effect a moving target.
The future of China, and of the renminbi, is of course important for
China experts, but this book is not just for them. The People’s Money tells a
story in plain, nonspecialist language and aims to draw in readers interested
in economic and financial affairs who feel put off by the excessive special-
ism in the field. Colleagues who read earlier drafts were surprised not to
find any tables or charts. This was a deliberate choice to make the narrative
central to the book’s structure.
Inevitably The People’s Money is also a book on the dollar, as it is impos-
sible to talk about the renminbi, and China, without referring to the dollar,
and the United States. Deliberately, I tried to steer away from the discussion
on whether the rise of the renminbi will turn into a demotion of the dollar.
Many books have been written on the future of the dollar, and most of these
books have been written by American scholars for the domestic audience.
Here I offer different perspective on how the future trajectory of the dollar
will be affected by the international development of the renminbi if China
succeeds in its long-term financial and monetary reforms.
viii
PREFACE
Throughout the book, if not otherwise indicated, the dollar is the U.S.
dollar. I also refer to the Chinese currency as renminbi. This is the official
name that was introduced when the People’s Republic of China was estab-
lished in 1949. It is also possible to use “yuan,” which is the name of a unit
of the renminbi currency—like “pound sterling,” both the official name of
the British currency and “pound that is a denomination of the pound ster-
ling.” Originally, the name “yuan” indicated the thaler (or dollar), the silver
coin minted in the Spanish empire. Japan’s yen and South Korea’s won are
derived from the same Chinese character. Interestingly, in Chinese the U.S.
dollar is “mei yuan,” or the “American yuan.”
ACKNOWLEDGMENTS
Writing a book often feels like an act of self-inflicted misery. The support,
enthusiasm, and friendship of many people helped me contain my misery
within tolerable and manageable levels. Even so, I know I was unbearable!
Thank you, Stephen and Philip, and Francesco, Martina, and Sabrina (and
extensions) for putting up with me.
A bunch of extraordinary women were critical to keep this project on
track. Sarah Okoye kept me organized when I was busy with “the book.”
Leslie Gardner believed in the project from when it was just an idea,
arranged the “perfect match” and kept smiling even when everything looked
pear-shaped. Bridget Flannery-McCoy was the editor from heaven: intel-
ligent, good-humored and engaged. She helped me turn a boring technical
draft into a book that a non-specialist audience may be interested to read.
Julia Leung, former Under Secretary for Financial Services and the
Treasury of the Hong Kong SAR Government and then Inaugural Julius
Fellow at Chatham House, helped me to see the big picture and to under-
stand the long-term impact of China’s renminbi strategy. She was generous
with her time in discussing, on a number of occasions, the principal ideas
in this book, providing some goalposts at the beginning of the project and
sharing her deep knowledge and understanding of China’s financial sector.
ix
