Ithaca, New York, Cornell University Press, 2014, 288 pp.
Review by Adrien Faudot
This collection is edited by two experts in international political economy, their association having already produced reference works on international monetary relations, notably The Future of the Dollar (2009). The two academics repeat the experience, this time focusing on China’s monetary relations and the internationalisation of its currency, the renminbi (RMB). The book seeks to understand the political stakes in China’s international monetary relations and the type of power it is acquiring from them (p. 2).
Benjamin Cohen’s chapter considers the strategy China is pursuing in internationalising its currency – how far will the RMB go? – bearing in mind the failures of previous competitors to the dollar. The vagueness of the response is due to ignorance of the strategy of Chinese power, knowing that it cannot be integrated into the monetary system dominated by the United States as were West Germany, Japan, and the Euro Zone, as China is not a historical ally of the American hegemon and “it is not at all clear that the Chinese are ready to dance” (p. 40). While strong economic incentives could link China to the current international monetary system by according some rights and admitting it to the “club” of international powers, geopolitical considerations could upset this economic logic and make China adopt a conflictual attitude vis-à-vis the existing monetary order.
Eric Helleiner and Bessma Momani examine China’s relations with international organisations, the IMF in particular. They note that Chinese positions have their origins in the early twentieth century. Sun Yat-sen had already formulated the bases of a project for China’s international development, defended at Bretton Woods by the Chinese delegation. Helleiner and Momani observe that after 1945, China pursued similar objectives in negotiations with the IMF: reaffirming the Chinese economy’s importance in helping balance the global economy; conserving autonomy and sovereignty in capital controls and choice of exchange rate while demanding a macroeconomic surveillance of member states; finally, increasing the importance the institution accords to developing countries, especially in financing. Although the Cold War constituted a major break, as China was kept out of the IMF for 31 years in favour of Taiwan (until 1980), these objectives still largely determine China’s attitude within the institution.
David Steinberg’s contribution studies the determinants of China’s considerable accumulation of foreign exchange reserves (about three trillion dollars in 2014). The two periods of rapid accumulation he distinguishes are 1994-1997 and 2003-2008. Steinberg sees in this accumulation the results of a domestic conflictual force equation between those who view it as a concrete advantage (financial stability and vitality of export industries) and those who consider it a disadvantage (for industries making non-exchangeable products, for example, or even the central bank, which is held responsible for the inflation that this accumulation helps fuel). The succession of periods of more or less rapid accumulation of reserves could have resulted from this balance of force in national policy, in Steinberg’s view.
Hongying Wang deals with the global imbalance and China’s considerable current account surplus (10.1% of GDP in 2007 and still largely positive, albeit now shrinking). Wang stresses the need to study it, apart from as mere exchange rate, in its growth regime. Characterised by rising inequalities, China is pursuing an export dependent regime due to institutional inertia while the poorest populations, which could impart dynamism to internal demand, have very little political influence. Political determinants are therefore essential. China’s nationalism and quest for autonomy if not influence vis-à-vis the rest of the world also explain its zest for accumulating reserves.
Andrew Walter considers policies of macroeconomic surveillance, retracing the evolution of China’s current account surplus with the United States and the IMF’s reactions as well as those of US leaders. A dialogue that had long been courteous, thanks to numerous American multinationals’ dependence on China, turned quite tense in 2007. The 2008 financial crisis doused these tensions by reducing the trade surplus, to the extent that from 2011, Chinese leaders declared the objective of reorienting the growth regime – via an augmentation of household consumption and reduced investments. It is nevertheless difficult to envisage that the Chinese government’s new objectives have been influenced by international macroeconomic surveillance, given the role of different interest groups in the country and the political projects pitting them against each other.
Yang Jiang likewise highlights these dissensions, observing that the still very limited internationalisation of the RMB is not a priority for Chinese leaders. In the author’s view, internationalisation would require liberalisation and a far-reaching opening of the economy (especially capital account), something the CCP leadership does not seem keen to initiate. This explains why China has so far opted for bilateral partnerships – rather than multilateral – with neighbouring countries and BRICS members and the European Union, which hardly seek to engage China in reform issues.
Gregory Chin is evidently more optimistic. In his view, China has developed a monetary strategy after the Asian crises leading to the twin resolves that the dollar-based monetary system requires reform as do international institutions. Early in the last decade, China sought to engage with international institutions, especially the IMF, but had great difficulty getting a hearing, ignored as it was by Western interlocutors who put forth demands unacceptable to Beijing, such as opening the capital account and making the RMB fully convertible. The 2009 crisis served to unleash a strategy to overcome these obstacles. China mobilised partners (notably the BRICS) agreeing on the principle of diversification of monetary practices: the reserve currency and that for the BRICS’ international exchanges would have to be that of the BRICS themselves. In this context and on the strength of its macroeconomic performance, the Chinese currency has emerged as an instrument of monetary diversification, helping international actors expand their range of possible choices – especially in respect of reserve currencies. In this, China has developed a form of structural power and is shaking up that of the United States.
This ability to acquire international monetary might is further developed in the last contribution by Jonathan Kirshner. While the author warns that an economic catastrophe could well overtake China for different reasons (environmental, banking, social, and political), the economy has kept to a growth rate higher than that of the United States, at the same time raising the issue of the RMB’s internationalisation, which is seen as a means of insulating the Chinese economy from troubles caused by dollar fluctuations and of building a relationship of strength so as to modify the functioning of institutions of the international monetary system. Chinese leaders thus have ambitions of challenging the “dollar’s monopoly.” More fundamentally, it is the model driven by the United States that China contests through its monetary strategy. Kirshner’s contribution contains a salutary account of the major liberalisation movement of the 1990s. While the Asian crises could have been foreseen in such a framework, they contributed to Asian countries’ distrust of financial liberalisation. They became receptive to the Chinese discourse of a need to challenge the international monetary system and constituted a solid base for the RMB’s internationalisation, at least regionally.
Overall, the book does not defend just one thesis but contains several. The divergences are to be found essentially in the evaluation of factors that could slow down if not block the RMB’s expansion: the nature of the nation’s political project, internal political dissensions, integration and adaptation in institutions of the existing monetary order… The theses defended are often contradictory, and it is left to the reader to synthesise them. Add to this the bibliography – 20 pages – which helps interested readers to go deeper into the reflections offered in the book’s various contributions. It may be noted that Benjamin Cohen, known for his past demystifying analyses of the internationalising abilities of currencies supposedly competing with the US dollar, is more measured in his contribution this time, leaving open the possibility of an overhaul of the international monetary system, especially in view of the Chinese case.
While it would have been agreeable to find descriptive and analytical elements helping track the RMB’s internationalisation both qualitatively – institutions engaged with their technical instruments – and quantitatively – what is the rhythm and geographic extent of this internationalisation? – this collection of essays nevertheless constitutes a reference text for the study of international monetary relations. Experts in this field pay special attention to China, understandably: in December 2014, the RMB ranked fifth for payments according to SWIFT, the global operator of international financial messages, thus confirming an extremely rapid growth rate, to the extent that the RMB should catch up with the yen in 2015.
 “‘Only by eliminating the U.S. dollar’s monopolistic position’ can the system be reformed” (Li Ruogu, president of the China Export-Import Bank, quoted by Kirshner, p. 223).
Translated by N. Jayaram.
Adrien Faudot is a PhD candidate in economics at the Centre for Research in Economics of Grenoble (CREG), University of Grenoble-Alpes (firstname.lastname@example.org).