Chinese Currency and the Global Economy: The Rise of the Renminbi: The Rise of the Renminbi


From ancient “knife money” to the Renminbi—a fascinating history of Chinese currency

Chinese Currency and the Global Economy is an all-encapsulating study of the Chinese monetary system from the historical perspective of global economy and finance.

From economic infrastructure to the cultural system and from world events to the domestic scene, author Chen Yulu describes the metamorphosis of the Chinese ...

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Chinese Currency and the Global Economy: The Rise of the Renminbi: The Rise of the Renminbi

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From ancient “knife money” to the Renminbi—a fascinating history of Chinese currency

Chinese Currency and the Global Economy is an all-encapsulating study of the Chinese monetary system from the historical perspective of global economy and finance.

From economic infrastructure to the cultural system and from world events to the domestic scene, author Chen Yulu describes the metamorphosis of the Chinese currency and examines what is entailed in the globalization of Renminbi against the background of world economic multi-polarization.

Chen Yulu is an Eisenhower senior visiting fellow and a Fulbright senior scholar. He serves concurrently as president of Renmin University of China, vice-chairman of the China International Finance Association, and deputy secretary general and executive director of the China Society for Finance and Banking.

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Product Details

  • ISBN-13: 9780071829908
  • Publisher: McGraw-Hill Professional Publishing
  • Publication date: 5/29/2014
  • Edition number: 1
  • Pages: 176
  • Product dimensions: 6.00 (w) x 9.00 (h) x 0.38 (d)

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McGraw-Hill Education

Copyright © 2014 McGraw-Hill Education
All rights reserved.
ISBN: 978-0-07-182992-2



From cowries, precious stones and metals, five-zhu copper coins (one zhu equals one twenty-fourth of one tael), and feiqian and jiaozi paper money to present-day Renminbi, the course of evolution in Chinese currency reflects the comprehensive progress in society, politics, economy, and culture in the age-old Chinese civilization. It is a crystallization of the metamorphosis of Chinese culture over the last five thousand years.

Money is the foundation of commerce and economic activity. The monetary system is the fundamental institutional arrangement of socioeconomic interactions. What determines the monetary system is not just the economy, technology, or social system—in a deeper sense, it is predicated on civilization itself. It is civilization that endows money with the magic power to change the world in today's monetary revolution.

Since this chapter refers to numerous periods and dynasties throughout China's history, please feel free to consult Table 1.1 for reference.

Money and Credit in the Pre-Qin and Qin–Han Periods

Chinese culture originated in the vast plains of hinterland China. In the Shang and Zhou dynasties, money in circulation took the form of cowrie shells brought from what are today's Shandong and Maldive Islands. The Chinese shipped such shells all the way from the sea to central China to meet the needs of princes, marquises, and the nobility for jewelry and ornaments. From the decorative patterns on excavated earthenware dating back to the Shang and the Zhou, it is possible to see people wearing strings of shells on their necks and waists. The nobility were the first to use cowries as a medium of exchange. The face value of this kind of money was based on the value of the jewelry they were wearing. One string of 10 cowries equaled one peng and 20 peng were worth three ITLμITL of farmland. People were accustomed to using cowries as legal tender through long years of trading activities. In this way, the cowrie shell became the progenitor of the Chinese currency.

With productivity growing steadily, dukedoms of the Spring and Autumn Period began to build post roads to facilitate communication and transportation. As transportation became more and more convenient, cowrie shells were no longer a rarity and therefore lost their function as a measure of value. With the invention of metal smelting technology during that period, bronze, gold, and silver replaced cowries to become major raw coinage materials. At the time, people were yet to be awakened to the concept of credit, and the circulation of money was based on the money's utility value. In ancient times, money in circulation was not issued by the government, which means there was no difference between good money and bad money. Copper coins were fashioned in the shape of their predecessors—cowrie shells—for everyday use, hence the term "copper shells." Cake-sized copper coins, or "copper cakes," came in handy when bulk commodities changed hands. Both copper shells and copper cakes may be called "money measured by weight," which, like cowrie shells, were born of economic development. After the Spring and Autumn Period, copper became the main raw material for coinage.

In the Spring and Autumn and the Warring States Periods, differences between dukedoms of the Zhou dynasty in economic development, productivity, and folkways gave rise to diverse forms of money. The Chinese currency embarked on a road of diversified development as a result. The money circulated in every dukedom bore distinctive features of the local mode of production and lifestyle, leaving clues about the course along which the Chinese civilization evolved. The money in circulation in those years fell into three general categories: first, spade-shaped coins circulating in the central Chinese dukedom of Jin that later split into three states—Zhao, Han, and Wei; second, knife-shaped money in the coastal states of Qi and Lu; and third, the shell-shaped copper coins in the state of Chu in present-day Hubei Province, with the city of Jingzhou at its center.

The dukedom of Jin, carved into three pieces by the dukes of Han, Wei, and Zhao in 359 BC, was situated in the middle reaches of the Yellow River and the Guanlong and Heluo areas. As agriculture was already a dominant tradition in that part of China in those years, the coins in circulation there took the shape of a bo, a spadelike farm tool used to hoe up weeds. Obviously, the spade shape of the coins symbolized the local people's dream for a reposed farming life and reflected the everyday life of farmers who began tilling the land at sunrise and went home at sunset on the Loess Plateau. The land of Jin was the cradle of the Legalist school of thought, as its leaders—Han Fei (281–233 BC), Shen Buhai (385–337 BC), and Shang Yang (395–338 BC)—were born there. That is probably why many spade-shaped coins in that region bore the pictographic character tian [??], a symbol of the stringent statecraft advocated by the Legalists.

Different from the vast hinterland China, the land of coastal eastern China that was home to the states of Qi and Lu was unfriendly to farming. According to the Records of the Great Historian, the territory of Qi was where "the sea dumped its salt, turning it into saline-alkali land that kept the yield of the five cereals low and left local people in poverty." However, the people of Qi and Lu, "honing their skills to excellence and becoming adept in dealing in fish and salt," launched booming fishery and weaving-and-spinning undertakings. Industry and commerce thrived as a result. Six of the state of Qi's 21 townships were industrial and commercial centers where "hats, belts, clothes, and shoes made in the state of Qi were sold all over the country, while one duke after another arrived from the East Sea and Mount Taishan to pay homage to Qi in hushed awe and reverence."

Most coins in circulation in Qi assumed the shape of a knife, denoting not a weapon but a fishing tool popular with local fishermen. In keeping with the reputation of the Qi and Lu as the cradle of Confucianism, the design of this knife features a concave back and a convex blade that combine to look round outwardly and square inwardly. The wisdom of Confucius's countrymen was best exemplified in the exquisiteness of this knife-shaped coin—its length of 18 centimeters is equivalent to that of a human hand, and six such coins can be put together to form a perfect circle.

In contrast to hinterland China, the state of Chu in the Yangtze River valley belonged in the southern branch of Chinese civilization. Its land in Hubei Province, with Jingzhou at the center, was an expanse of hills and marshes unsuitable for grain and cotton crops. The ancestors of the local people overcame these natural adversities and developed a powerful handicraft industry. The best lacquerware from China at the time was made in the state of Chu, and as archeological discoveries indicate, these products were sold all the way to southeast and central Asia. During the Spring and Autumn and Warring States Periods, commerce in the Jingzhou area was probably the most developed in China. As the birthplace of Taoism, that area was also known for its splendid and somewhat mysterious culture. While people in the central plains worshipped heaven, folks of Jingzhou believed in witchcraft and wizardry. Their metal money, a kind of "copper shell," resembles a cowrie shell. As the local mountains abounded in gold ore, the state of Chu was the leading gold producer in China. The gold from that state spread to other parts of the country alongside shiploads of lacquer-ware on the Yangtze River. Hence the old refrain, "Gold comes from the state of Chu."

Gold had already become an important currency by the Spring and Autumn and Warring States Periods. To cite the Records of the Great Historian again, "After Su Qin talked the king of Zhao into forming a coalition of six states, the king rewarded him with a hundred chariots and a thousand yi of gold" (1 yi equals 20 taels).

The shape of this kind of money remains unknown to this day, but one thing is certain: gold was already a precious currency by weight at the time. "Gold money weighed by yuan," cast in the state of Chu, and in the Chu capital city of Ying in particular, was a major form of money. Yuan was a measuring unit for money by weight.

During the Warring States Period, Ying Zheng, the king of Qin, conquered the rivaling states of Han in 230 BC, Zhao in 228 BC, Wei in 225 BC, Chu in 223 BC, and Yan in 222 BC. In 221 BC, he eventually eliminated the Qi and unified China in a feudal monarchy. Since then China has been able to overcome incessant domestic scrambles between warlords and invasions by alien powers to remain a unified nation with Han people composing the majority of the population.

After establishing the Qin dynasty, which was China's first feudal empire, the first emperor proclaimed, "Gold, to be measured under the yi weighing system, is to be the upper currency; a coin of bronze that has a fixed weight of half a tael, with its denomination matching its true value, shall serve as the lower currency; pearls, jade, tortoise shells, and cowries, as well as silver and tin fall into the category of jewelry, ornaments, and collectables—they are not to be used as money." During his short-lived reign, Hu Hai, the second emperor of the Qin dynasty, issued one edict after another to demand establishing the half-tael bronze coins as the official currency, a fact that indicates his failure to execute the monetary system initiated by Ying Zheng. The half-tael coins never became the standard currency even after the Qin dynasty met its demise at the hands of peasant rebels.

After the Qin dynasty gave way to Liu Bang's Western Han dynasty, illegal minting of coins ran rampant under the protection of the newly enfeoffed, powerful dukes. It remained a serious problem even after Liu Bang issued an edict to sanction it. Whether by repeatedly changing the weighing system for the official coinage or by replacing eight-zhu coins with three-zhu ones in its early days, the Western Han dynasty was not able to unify its monetary system. At its wit's end, the government had no alternative but to permit dukes to cast their own coins under the pretext of "letting citizens cast money." That action was of little use, as the unification of a currency calls for a developed economy and an all-powerful central authority.

It was not until the reign of Liu Che, the Emperor Wu of Han, that the coinage system was unified. According to the new government stipulation that "all the copper delivered to the state should not be minted into coins" and that "those guilty of piratical coinage shall, without exception, be sentenced to death," those who illegally cast money were subject to stern punishment.

Liu Che worked to promote three-zhu coins and platinum coins. But both efforts failed—disparity between the real value of both types of coins and their denominations had spawned problems in their circulation. Eventually the emperor changed his mind, deciding to put fivezhu coins in circulation.

The five-zhu coin was a major breakthrough in China's monetary history. The government eventually found a feasible value for the currency among all sorts of money by weight. Moreover, the emperor was also able to monopolize copper production and reserves. Both factors explain why the five-zhu coin could become a stable currency in the latter part of Liu Che's reign. In spite of the regent Wang Mang's attempt to change the monetary system in the twilight years of the Western Han dynasty, the prestige of the five-zhu coin stayed untarnished. The public continued to trust it during Wang Mang's rule, which was best described in this folk rhyme: "A yellow-skinned ox ought to have a white belly; the five-zhu coin deserves to be brought back."

Large-scale credit was already in existence during the Han dynasty. One kind of credit was given by the government for the relief of victims of famine and natural disasters. Although there were records about this form of credit prior to the Han dynasty, they were not elaborate enough to make sense. The Book of Han gives a relatively clear record. According to it, the largest scale of governmental credit happened in 120 BC after Shandong was inundated by floods. Since it would take years for the land to regain fertility after the disaster and the cost of long-term relief was high, Liu Che evacuated 700,000 flood victims to Kuaiji, where their food and clothes were supplied free of charge and their production tools were provided by the government on credit.

The second kind of credit was nongovernmental. The lender was known as "ziqian holder" and the money to be lent was ziqian, meaning "money that can make more money." As far as historical records go, the largest-scale nongovernmental borrowing in the history of the Han dynasty took place during a rebellion of seven princes. During that period, Liu Qi, the Emperor Jing of Han, collected funds from dukes, princes, and citizens to fight the rebelling princes. A family surnamed "Wuyan" in Chang'an lent a thousand taels of gold to the royal army. After the rebellion was quelled, the repayment the family received was 10 times more than what it had lent. In one year's time, the family of Wuyan became the richest in the Central Shaanxi Plain.

Lending by monks and temples was the third kind of credit. During the Han dynasty, Buddhist monasteries had begun to give credit to local residents and princes and aristocrats. With Buddhism steadily gaining ground in the Northern and Southern dynasties, monks and monasteries became powerful enough to lend money for the relief of disaster victims.

Money and Credit in the Sui and Tang Dynasties and the Song and Yuan Periods

In AD 518 Yang Jian, a North Zhou dynasty minister, dethroned the dynasty's last emperor and proclaimed himself Emperor Wen. Although the Sui dynasty he founded was short-lived, as it went through only two emperors in 38 years, it was a watershed period in Chinese monetary history. It is safe to say it was not until the Sui dynasty that the Chinese currency was really unified for the first time in history. Although Ying Zheng, the first emperor of the Qin dynasty, had tried to unify the money, the feudal system he had personally founded did a poor job in executing his order. Emperor Wen coined the five-zhu money again, known in history as the "five-zhu money of the Sui." When the five-zhu coins of the Sui were issued, outdated currencies were still in circulation. The emperor issued the order that "all the old money used in the marketplace shall be confiscated by the government" and cracked down on those who illegally minted coins.

Chinese feudalism reached a pinnacle during the Tang dynasty. That is why many overseas Chinese today still proudly call themselves "Tang people." The Tang dynasty was the most brilliant era in ancient China, and its influence on China and the world is still keenly felt to this day. In the heyday of the Tang dynasty, China's grain output per capita amounted to 4,524 jin, a record that stayed unsurpassed as late as 1978, when the figure was a meager 2,214 jin. When Li Shimin, the Emperor Taizhong, started his reign of Zhenguan, he issued kaiyuan tongbao, the "coin to inaugurate the reign." This coin was first cast by his father, Li Yuan, in 621 or the fourth year of the reign of Wude, but historians generally regarded it as a symbol of the prosperous reign of Zhenguan. Kaiyuan tongbao was not measured by weight, with 10 such coins equaling one tael (37.5 grams) or 10 qian, and it put an end to the circulation of the five-zhu coins dating back to the Western Han dynasty. Since then the Chinese currency has never been based on weight. However, with development in production and growth in the volume of everyday transactions, kaiyuan tongbao showed its limits, for it was designed for use mainly among landholding peasants. Merchants and government officials gradually used gold and silver to handle large payments and transactions. However, gold and silver never became a popular medium of exchange during the Tang dynasty.

A lack of coins in circulation was the number one headache during the early years of the Tang dynasty. The weight of kaiyuan tong-bao was never reduced. Its minting cost, averaging 900 coins for every guan or string of 1,000 coins, was boosted as a result of maladministration, while the supply of coins in circulation was always short of demand. As a result, illegal coinage prevailed once again. Illegal coins in circulation could have led to a price hike, but prices were surprisingly stable during the early Tang dynasty. The reason behind it was that under the reign of Emperor Li Shimin, production was developed to a point where the sum total of governmental and illegal coins was not large enough to meet the demand for money in circulation, so much so that the dynasty had to resort to deflation to keep the economy going in its early period.


Excerpted from CHINESE CURRENCY AND THE GLOBAL ECONOMY by CHEN YULU. Copyright © 2014 McGraw-Hill Education. Excerpted by permission of McGraw-Hill Education.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

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Table of Contents


Introduction, vii,
1. The Historical Evolution of China's Monetary Culture, 1,
2. The Cornerstone of Chinese Currency: Growth Without Crisis, 25,
3. Chinese Monetary Policy, 47,
4. The RMB Exchange Rate, 75,
5. Capital Account Opening in China, 99,
6. International Monetary System Reform and RMB Globalization, 125,
Notes, 151,
Bibliography, 153,
Index, 157,

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