China’s Money Is a Party Matter
Donald Trump sees China as “a currency manipulator” and has accused it of ripping off the US by dumping its low-priced goods there. Fear has also grown as the Chinese currency has strengthened and become more internationalized. Nobody is perhaps better placed to explain the renminbi’s role than Cornell economist Eswar Prasad, formerly head of the International Monetary Fund’s China Division. In this timely volume, he traces the struggles of the People’s Republic of China to modernize and reform the country’s economy while maintaining control of a one-party state. Why is China reluctant to allow full capital account convertibility as it seeks a seat at the high table of global finance? Why is it so keen to internationalize its currency and use it instead of the dollar, euro or yen? Why does it seek reserve currency status for the renminbi?
Prasad, ever the professor, offers a primer on macroeconomics relating to China. He also shows how financial issues are intimately related to the Chinese Communist Party’s mission to rise to the top of the world of international finance and shape the rules of the game, with party reformers using the cudgel of internationalization to force reform of the financial and banking sectors, just as by joining the WTO, China forced its sclerotic state-owned enterprises to reform. But Prasad is cautious about its chances for success, noting, “a deep internal conflict between its stated objective of letting markets operate freely and its desire to maintain stability and control above all else.” That, Prasad argues, is leading a “one-step forward, two-steps sideways trajectory.”