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This chapter examines both price and flow evidence to determine how effective China's capital controls have been in the past and remain at present. Section 12.2 describes the increasing openness of the Chinese economy to cross-border flows as background for both price and flow analysis. Section 12.3 reviews and updates the price evidence that capital controls are still binding. Section 12.4 examines the gap between renminbi and US dollar short-term interest rates during the period of de facto dollar pegging of the renminbi between the mid-1990s and July 2005, arguing that these rates converged soon after China's inflation had fallen from double-digit levels in the early 1990s. Section 12.5 demonstrates the responsiveness of various measures of capital flows to interest-rate differentials and exchange-rate expectations. Section 12.6 discusses challenges to China's capital account liberalization.

The earliest stage in the life cycle of an international currency is youth – the vital formative years when a national money first starts to show signs of acceptance for international purposes. The issuing authorities, in response, have a choice among three strategic options: prevention, promotion, or permission. The issuer may seek to promote foreign acceptance; conversely, it may wish to take action to prevent wider use; or, less decisively, it may elect simply to permit internationalization. Recent history provides examples of all three choices, with outcomes that have varied considerably. The prevention option is illustrated by the early West German and Japanese efforts to resist internationalization of their currencies, respectively, the Deutsche mark and yen. Examples of a promotion strategy include both a short-lived experiment by Japan in the 1990s and China’s more recent campaign for its renminbi, which is still ongoing. The permission option is represented by Europe’s “non-policy” response to the rise of the euro after the currency’s birth in 1999. Taken together, these episodes form a remarkably consistent pattern. They all illustrate the importance of geopolitical ambition – its presence or absence – as a motivating force for currency statecraft.

What happens when currency statecrafts collide? Although the potential for policy conflict between monetary rivals would appear, in principle, to be great, the modern era has actually seen remarkably little overt warfare between international moneys. With the emergence of China’s renminbi, however, we have an exception – a unique and potentially historic confrontation between a rising monetary power, China, seemingly committed to do all it can to move currency preferences in its favor, versus a long-time incumbent, the United States, that is unlikely to surrender its historical privileges without a fight. In terms of capabilities, it would seem, the advantage is all to the greenback, which is backed by power resources that – so far, at least – greatly outstrip anything available to the renminbi. But in terms of statecraft, Beijing has shown a determined and nimble strategic sensibility that is well beyond anything we have yet to see come out of Washington. Three questions are addressed in this chapter. First, why is the dollar-renminbi confrontation so exceptional? Second, how is the confrontation likely to turn out? And third, what are the implications for possible collisions of currency statecrafts in the future?

This chapter begins by questioning whether the British administration would have been better able to lead Hong Kong through the Asian financial typhoon. In addition to giving a brief account of the speculative attacks on the Hong Kong dollar in 1997–98, this chapter looks into whether there are tenable economic factors underlying the international speculations for a renminbi devaluation. Moreover it evaluates the effectiveness of revamping the Currency Board and discusses the impacts on Hong Kong's external trade.

Despite predictions that the dollar’s key currency status would be challenged by the 2008 financial crisis, there has in fact been very little change in the greenback’s international role. Expectations that the crisis would generate a massive crisis of foreign confidence in the dollar did not pan out; indeed, the dollar appreciated as the crisis intensified because of support from both private investors and foreign governments. The dollar’s international role was also not challenged in any significant way by post-crisis initiatives to strengthen the reserve function of the IMF’s Special Drawing Rights and encourage greater internationalization of other currencies. Rather than undermine the dollar’s status, the 2008 financial crisis provided new insights about the sources of the dollar’s international preeminence.

This chapter analyzes the impact of the rise of the Chinese economy on the international economic structure. While looking at the rapid growth of the Chinese economy, analysis reveals that China has yet to challenge the United States as the anchor of the global financial system: the renminbi remains negligible in international financial transactions. Indeed, since the 2007–8 global financial crisis, the U.S. dollar has expanded its importance relative to the renminbi in global finance. The chapter suggests that the renminbi is far from becoming a significant international reserve currency and that the United States will continue to dominate the regional financial order. In trade relations, however, the chapter establishes the significant importance of the Chinese market for economies throughout East Asia.

This chapter discusses the evolving role of the US dollar in the international monetary architecture. Her analysis is motivated by the concern that the financial crisis that originated in the United States in 2007 might have a negative impact on the role of the US currency in world financial markets. However, after reviewing the evidence, Goldberg asserts that the US dollar remains the dominant international currency according to a variety of typical functionalities of money. The US dollar’s prominence thus largely survives the recent market turbulence, as well as the nascent Chinese push of its currency, renminbi, to the international market. Goldberg notes that changes in the US dollar status as an international currency could have negative implications for the US in terms of seignorage returns, funding costs, currency value, shock insulation, and global influence. However, she anticipates the international role of the US is quite stable and does not consider these potential negative impacts on the United States to occur in the foreseeable future.

China’s success in feeding itself has defied the expectations of many. But, rising agricultural labor costs, increasing competition from imports following renminbi appreciation, and growing agro-climatic uncertainty in the face of tightening land and water constraints and rising cereal feed demand for increasingly protein-rich diets are challenging its smallholder and cereal self-sufficiency model. These farm income and food problems could be overcome by a moderate relaxation of the cereal self-sufficiency ambitions (especially for maize) and institutional innovations in the land, labor, and capital markets, keeping smallholder farming commercially viable. These would help maintain sociopolitical stability at home (by containing food price inflation and reducing the rural–urban divide) and abroad (by avoiding sudden entrance into the world food markets).

This chapter analyzes the relationship between Chinese and U.S. monetary policy. It specifically looks into the nations' partnership during the global financial crisis when both nations were at an impasse. The monetary policy of the U.S. Federal Reserve is supported by the saving inflows from China, who invested the country's dollar earnings (from export surpluses) in U.S. Treasury bonds. However, due to the crisis, the U.S. was left with an unsustainable housing bubble, leading to the renminbi, the Chinese currency, to depreciate due to burgeoning export surpluses. Chinese authorities were therefore left to decide on whether or not to appreciate the renminbi. Appreciating it would serve U.S. interests as China would send fewer exports to the U.S. and deprive fewer Americans of their jobs. On the other hand, the Chinese commerce ministry, which is in charge of exports and imports, disapproves of the motion as it would impair the export and domestic import-substituting sectors of the nation.

This chapter focuses on ghost bills which, as a paper simulation of real money made from paper, seem to defeat the conceptual power of a “paper money” and thus appear more real than the other, older forms of paper money. After providing an overview of the history and diffusion of ghost bills, the chapter considers the semiotics and use of ghost bills such as the Hell Bank Note. In particular, it examines the extent to which ghost bills represent a paradigm shift in the paper money tradition. It also discusses the identity of human figures and bank officials printed on paper notes; replicas of national currencies; notes that resemble the real-world Renminbi (RMB); face values and inflationary tendencies of ghost bills; signs of decommoditization of ghost bills; and a pedagogy of ghost bills.

This chapter examines the relationship between the renminbi (RMB) real exchange rate and China's output by using the vector autoregression (VAR) model technique. The results show that RMB real appreciation has led to a decline in China's output, suggesting that currency appreciations have been contractionary in China, as traditional open economy macroeconomics forecasts. When the international finance linkage of the Chinese economy is accounted for, the effect of RMB real exchange rate shocks on China's output and the power of the shocks in explaining the change of China's output are relatively small, while the effect of U.S. interest rate shocks on China's output is relatively large. The intuition behind this finding may be that the effectiveness of China's capital controls has eroded over time and the scales of capital inflows and outflows have become large enough that external shocks through international finance channels have significant influence on the Chinese economy, exceeding the influence of external shocks through international trade channels. Shocks to domestic money supply and foreign demand also have important effects on China's output. However, government spending shocks have less power in explaining the change of China's output.

China’s extraordinary economic growth over recent decades underpins the top global rank of its financial centres of Hong Kong, Shanghai, and Beijing. Hong Kong is China’s window to global capital, an Asia-Pacific leader, and one of the top three global financial centres, along with London and New York. Shanghai is the commercial-financial centre, and Beijing is the political-regulatory centre of China. Government policy supports stock- and bond-connect programmes among its exchanges, Fintech, internationalization of the renminbi, and its ‘Belt and Road’ initiative and associated Asian Infrastructure Investment Bank (AIIB). These directly and indirectly strengthen China’s internal financial centre networks and the centres’ global links. The government’s political and economic policies maintain Hong Kong as a premier global centre. China controls its banks, and its strength as a large economy will help mitigate the impacts of a global financial crisis.

This chapter examines the spatial and temporal dynamics shaping the development of financial markets and activities to account for the rise of Singapore as an international financial centre (IFC). The analysis draws upon the preceding 1997 Asian financial crisis as industry changes and policy response back then set the stage for subsequent industry shifts, which have shaped the responses and impacts of firms, regulators, and consumers following the 2008 Global Financial Crisis. Key industry shifts include banking liberalization and changing forms of financial consumption in Singapore. The growing prominence of financial markets and emerging sectors, such as Islamic banking and finance (IBF) and offshore renminbi (RMB), and fintech are also examined in terms of their importance for Singapore’s future role as an IFC.

This chapter evaluates multiple dimensions of the global power shift from the incumbent G5/G7 powers to the rising powers, especially the members of the BRICS (Brazil, Russia, India, China, and South Africa). Taking note of alternative conceptualizations of interstate “power,” the text maps the redistribution of economic capabilities from the G7 to the BRICS, most particularly the relative rise of China and decline of Japan, and especially Europe. Given these clear trends in measurable material capabilities, the BRICS have obtained considerable autonomy from outside pressures. Although the BRICS’ economic, financial, and monetary capabilities remain uneven, their relative positions have improved steadily. Via extensive data analysis, the chapter finds that whether one examines China alone or the BRICS as a group, BRICS members have achieved the necessary capabilities to challenge the global economic and financial leadership of the currently dominant powers, perhaps even the United States one day.

China pioneered the use of paper currency. This chapter traces the history of Chinese paper currency, from its origins in the 7th century, all the way to the present RMB notes. The chapter presents evidence that China not only had the first paper currency but also the first fiat currency (in Kublai Khan’s regime), among the first episodes of hyperinflation, and one of the earliest currency wars on record. The chapter also has a brief overview of Chinese monetary history prior to the creation of the RMB in 1949, when the People’s Republic of China was established. Finally, the chapter describes the evolution of different RMB notes and explains the difference between the terms renminbi and yuan.

This chapter examines Hong Kong, a Special Administrative Region of the People’s Republic of China. Consisting of the Kowloon Peninsula and 263 islands at the mouth of the Pearl River Delta in the South China Sea, Hong Kong is regarded as one of the most significant financial centers in the world. Throughout its history, Hong Kong has exemplified the “bridging” function associated with MDSJs—particularly as a gateway to the enormous domestic market and production capabilities of the Chinese Mainland. At the same time, however, Hong Kong’s substantial dependence upon and continuing integration with the Mainland has introduced challenges and risks that many fear could destabilize its financial center moving forward.