The People’s Money

FORTY YEARS AGO, China was an enigma to most foreigners.¹ The renminbi was at the time “an untraded, inconvertible currency in most important respects,”² as members of the U.S. delegation wrote in their report to Congress at the end of their extensive visit, adding that “tightness of exchange controls would make any de facto trading in renminbi extremely difficult, if not impossible.”³ Even today, many Western policy makers and economists do not see the renminbi as a full-fledged international currency because of its restricted convertibility. As U.S. Treasury Secretary Jack Lew made clear: “If China wants the renminbi to increasingly be an international currency, a natural next step in the liberalization and reform of the Chinese economy, [it] will need to successfully complete difficult fundamental reforms, such as capital account liberalization, a more market-determined exchange rate, interest rate liberalization, as well as strengthening of financial regulation and supervision.”⁴

Reforms of China’s financial and banking system, as I have discussed throughout the book, hold the key to the next step in China’s economic transformation into a significant player in international finance. The development of the renminbi as an international currency plays a critical role in this plan.

The Chinese leadership recognizes the importance of reforms. Common wisdom is that these reforms have to move in a careful sequence and at a gradual pace in order to create the background for the full liberalization of capital movement—in turn, a key element for the development of the renminbi. For other countries around the world, very liquid and open market-based financial sectors are a prerequisite for cementing a currency’s international role.⁵ If China chose this route, it would take many years for the renminbi to become a full-fledged international currency. However, the country’s leadership is challenging this approach, implicitly arguing that the renminbi does not have to follow the path that other dominant international currencies—the pound and the dollar—have followed.

China’s monetary authorities may have a point. Undoubtedly, the renminbi has made good progress and has significantly expanded its international use since the launch of the renminbi strategy in 2010. The inclusion of the renminbi in the Special Drawing Right (SDR) basket in December 2015 by the International Monetary Fund (IMF) was a turning point for the Chinese currency. But, although the IMF’s decision solidifies the renminbi’s status and recognizes its future potential, it also underscores the fact that the renminbi is very different from other currencies in the basket and that its development has been mainly regional.

What is the renminbi then? Is it a regional or an international currency? Is it convertible or nonconvertible? Fully usable or not? Does inclusion in the SDR basket mean that the people’s money is ready for the “big show”? Will the Chinese currency replace the dollar as the dominant international currency—and, if so, when? And what will be the outcome for the international monetary system—and, more generally, for global economic governance?

There is a sense that the renminbi is here to stay and that it will eventually become a key player in the world economy and international finance—as Christine Lagarde, the managing director of the IMF, put it: “it is not if, but when.”⁶ As I have argued, the renminbi is indeed an international currency in progress. But how close is it to qualifying as a full-fledged international currency? To answer this question, let’s consider two dimensions: scope (whether the renminbi performs all three functions of international money—means of exchange, unit of account, and store of value) and domain (what the currency’s geographical extension is).⁷

With regard to scope, the increase in the use of the renminbi to settle cross-border trade has been much more significant than the increase in the demand for renminbi-denominated assets. As I’ve said, renminbi are now used to settle more than 20 percent of China’s trade, and the currency ranks fourth among the world’s top payment currencies, with an approximately 2 percent share of global payments⁸ (the dollar and the euro have 45 percent and 27 percent, respectively). So the renminbi scores well in terms of the first function of international money—means of exchange.

It is not clear, however, how much of the trade settled in renminbi is also priced in renminbi. Normally, trade settled in one currency is also priced/invoiced in the same currency—but it seems that the case of China is different. Figures are not easily available because data on trade invoicing are not routinely collected and, above all, not routinely disclosed. Anecdotal evidence suggests that the dollar is mostly used in invoicing China’s trade, and in a research meeting in 2014, a People’s Bank of China (PBoC) official said that only half of the trade settled in renminbi was invoiced in the same currency.⁹ Assuming that this is the case, the renminbi scores poorly as a unit of account—the second function of money.

As for store of value, although the demand from non-Chinese for renminbi assets has considerably increased due to the second track of the renminbi strategy—in 2014, for instance, foreign investors’ holdings of domestic Chinese bonds increased by 68 percent, compared to the previous year ¹⁰—the market for renminbi-denominated assets remains limited. The managed convertibility of the capital account and the imposition of fiddly rules on inflows and outflows to put off speculators make it difficult for foreign investors to acquire relatively safe and liquid renminbi assets and even to open bank deposits. Bank deposits in renminbi held by nonresidents in the offshore centers (mainly Hong Kong) total 1.8 trillion renminbi—equal to approximately 1.5 percent of the onshore renminbi deposits. Offshore renminbi loans are tiny (about 188 billion renminbi), compared with the international banking liabilities denominated in U.S. dollars, euros, British pounds, and Japanese yen.¹¹ And although the renminbi offshore bond market has considerably expanded (especially between 2012 and 2014, when it grew approximately 30 percent on average), at 0.5 percent of the world total it is well behind the dollar-denominated market (40 percent of the total) and the euro-denominated market (41 percent)—and even the pound-denominated market (almost 10 percent) and the yen-denominated market (2 percent).

Finally, more than sixty central banks—including those from Chile, Nigeria, Malaysia, Thailand, Indonesia, Japan, and Korea—now hold renminbi in their foreign exchange reserves. The Chinese currency accounts for between 0.6 and 1 percent of global foreign exchange reserves held by central banks around the world.¹² This is a very positive achievement. Here, too, however, the numbers are tiny, compared, in particular, with the dollar and the euro, with total official reserve holdings of 62 percent and 23 percent, respectively.

We turn now to the second dimension—domain. As I’ve discussed throughout the book, the renminbi is used much more heavily in the Asia-Pacific region than in any other area of the world. Almost 90 percent of renminbi payments (in terms of value) take place within the region (and through the offshore centers), with Hong Kong holding the largest share at approximately 72 percent.¹³ The use of the renminbi in the Asia-Pacific region has more than tripled over the past three years, outstripping the Japanese yen, the U.S. dollar, and the Hong Kong dollar. In July 2015, the renminbi was used for 33 percent of payments between China (including Hong Kong) and the rest of the region, up from 24 percent in July 2014.¹⁴ The renminbi gained at the expense of the U.S. dollar, which was used in just 12 percent of payments in April 2015, down from approximately 22 percent in April 2012. (The yen and the Hong Kong dollar were also displaced but to a lesser degree.) Singapore, Taiwan, and South Korea now use the renminbi for most of their payments with China. In 2012, nineteen of the twenty-six countries in the region were “low users” of the currency, meaning the renminbi was used for less than 10 percent of their transactions with China; now, only nine low users remain.

Outside the Asia-Pacific region, the largest use of the renminbi is in the United Kingdom, with almost 5 percent of the total payments, and in the United States, with almost 3 percent. This is hardly surprising, given that these countries host the world’s leading financial centers of London and New York. The difference between the two is that London is an offshore market for the renminbi (chapter 8), whereas New York is not. The use of the renminbi is growing in other countries in Europe—notably, Germany (which has significant trade with China) and France—but the share of payments in renminbi in these two countries remains marginal—just over 1 percent for France and 0.5 percent for Germany. European Union–China bilateral trade is likely to grow close to 1.5 times within the ten years to 660 billion euros, and this should increase the use of the renminbi to settle trade transactions (as much as 40 percent of the EU–China bilateral goods trade by 2024).¹⁵

Although these achievements show that China’s renminbi strategy has worked, the first track of the strategy (the use of the renminbi for settling trade) has been more effective than the second track (the development of the renminbi as an investment asset that nonresidents are eager to hold). This is reflected in the renminbi’s limited scope. As for its geographical extension, this is limited, too. More than five years after the launch of the renminbi strategy, the Chinese currency is fundamentally a regional currency rather than an international currency.

As I’ve argued throughout the book, currency is a proxy for a country’s geopolitical power. “Great countries have great currencies.” Thus, the internationalization of the renminbi has implications that go beyond the currency’s “free usability”¹⁶ in international trade and finance. The rise of the renminbi has become part of the public discussion in China despite the authorities’ deliberate attempt not to bring too much attention to the renminbi strategy. Pride around the growth of the currency has as much to do with nationalism as it has with economics and finance.

In the narrative of the mainstream, popular media, it is a bit like the story of David against Goliath: the renminbi is the young kid fighting against the mighty giant, the dollar. The Chinese media have been hyping this story with the public since the launch of the cross-border trade settlement scheme, whereas the authorities have been playing the opposite role of taming expectations. In August 2010, for instance, the People’s Daily, the official newspaper of China’s Communist Party, anticipated “a bright future ahead of us.” A few weeks later, an even more confident article was published in the Financial Times. Qu Hongbin, the chief China economist at HSBC, reckoned that the renminbi strategy could be the beginning of “a financial revolution of truly epic proportions.” In his opinion, “if there is to be a rival to the dollar as the world’s reserve currency in the twenty-first century, it must surely be the Chinese renminbi.”¹⁷ Around the same time, China Daily, one of the leading Chinese newspapers, in more measured tones expressed the same concept in an editorial: “Internationalizing the yuan is a natural progression resulting from the nation’s unusually strong economic growth shown over the past decade.”¹⁸ This view was echoed by Liu Guangxi, the director of the Science and Technology Department under the State Administration of Foreign Exchange, who argued that it would not take long for the yuan to be internationalized, even if there was no timetable available.¹⁹

Expectations for the renminbi grew stronger between 2010 and 2014 as a result of currency appreciation. Not surprisingly, then, when the IMF crowned the renminbi as one of the elite currencies, the Chinese media were jubilant (even if by then the renminbi was weakening). “It’s hard to overestimate the significance of the decision, a landmark recognition of China’s increased role in the global economy and major progress in the evolution of the international financial system,” wrote the China Daily.²⁰

The official press and the public at large feel that with this inclusion the renminbi has been elevated to the same status as the dollar—and thus that China has been elevated to the same status as the United States, conveying the same influence in economic and financial affairs. “Without the inclusion of the yuan, the representativeness of the SDR and the legitimacy of the IMF would have been questioned,” reiterated the China Daily.²¹ For many Chinese, turning their currency into a peer of the dollar is a matter of national pride. Wu Jinglian, an economist at the China Academy of Social Sciences, expressed a common sentiment when he suggested that China “should try to increase the influence of renminbi.”

Although Chinese leaders have been more tight-lipped, they, too, welcomed the IMF decision, albeit in a cautious way. The PBoC called it “an acknowledgment of China’s economic development, reform and opening up” and further remarked that “China will continue to deepen and accelerate economic reforms and financial opening up, and contribute to promoting world economic growth, safeguarding financial stability and improving global economic governance.”²²

For the authorities, the inclusion of the renminbi in the SDR basket validates China’s achievements through the years and is a formal recognition of the increased international demand for its currency. But they are also clear that the next five years are going to be critical for cementing and growing the renminbi’s status as an international currency and for narrowing the gap with the currencies of the other “great nations.” “The renminbi’s importance had been set,” noted PBoC Deputy Governor Yi Gang in 2015. “It will take on a greater role, especially in our neighbours and new silk road countries.”²³

With the IMF decision marking the end of the first five years of the renminbi strategy, it is appropriate to ask whether China will continue to use the two-pronged approach—trade settlement and the offshore market—to drive the international use of the renminbi. In other words, where does the Chinese leadership see the renminbi by 2020—and will the currency be able to meet these expectations?

Ambitions for the renminbi have considerably shifted with the transition to leadership of President Xi Jinping, and the steady growth of the renminbi as a key regional currency no longer seems to be a sufficient goal. As China has become more assertive and even more aggressive geopolitically, the objective now is for the renminbi to carve out a place for itself in the international monetary system.

The Chinese authorities see breaking the dominance of the dollar and offering more options to importers, exporters, investors, and savers as steps toward a more balanced and less volatile international monetary system.²⁴ The renminbi strategy, at least in the medium term, is motivated by economic pragmatism—the need to have a more diversified and therefore more liquid international monetary system in order to avoid dollar shortages. At the same time, it is driven by the ongoing process of reforming the Chinese economy. It is a way to prepare the ground for the use of the renminbi in the global market.

Replacing the dollar with the renminbi at the top of the currency pyramid²⁵ therefore does not seem to be a priority on China’s agenda—which is sensible, given the dominance of the dollar standard. The authorities are also unwilling to release control of the exchange rate; maintaining the competiveness of China’s exports seems to take priority, on the policy agenda, over achieving more flexibility in the exchange rate, with its related risk that the renminbi will become too strong. But a currency that aspires to a key international role needs to be strong and stable in order to perform the function of a store of value—regardless of the impact of the exchange rate on exports’ competitiveness.

Some commentators—foreign but also domestic—reckon that the renminbi policies are the beginning of a long process that will eventually turn the Chinese currency into a rival for the dollar and even into a replacement for it. Arvind Subramanian, an American scholar, has even suggested that “the renminbi’s potential eclipse of the dollar is no more than a decade away” and that the strength of the Chinese economy creates the conditions “for the imminent rise of its currency.”²⁶ But this is reading too much into the Chinese authorities’ plan.

In March 2009, a few months into the global financial crisis, PBoC Governor Zhou Xiaochuan stirred up a lively debate both in China and internationally when he asked: “What kind of international reserve currency do we need to secure global financial stability and facilitate world economic growth…?”²⁷ Without explicitly calling for an end to the dollar dominance in the international monetary system, he suggested moving to a “super-sovereign reserve currency” to eliminate “the inherent risks of credit-based sovereign currency” and make it possible “to manage global liquidity.”²⁸ The sudden dearth of liquidity that followed the collapse of Lehman Brothers and almost brought international trade to a halt had made evident, the governor explained, the intrinsic fragility of the international monetary system and its inherent systemic risks. The country that issues the key reserve currency—Zhou was careful not to mention the United States in his speech—can sometimes be in a position where the goal of preserving the value of its currency conflicts with the goal of supporting the growth of the domestic economy. When faced with this dilemma, domestic priorities take precedence over other, more international considerations—and, as a consequence, there may be increasing costs and risks in using and holding that currency for international transactions and investments.²⁹

Zhou was speaking from experience. For a trading nation like China, a shortage of dollars (the currency used to price and settle most international trade) can put orders on hold and create considerable delays throughout the whole supply chain. In addition, China is flush with dollars and dollar-denominated assets, making it particularly vulnerable to changes in the value of the greenback. Above all, as Zhou hinted in his speech, because of its exposure to the dollar, China is in the shadow of U.S. domestic policies.

In his speech, Zhou warned against having a dominant national currency like the dollar and proposed an international currency that would be “disconnected from economic conditions and sovereign interests of any single country”—an idea that gained some interest among scholars but was then dropped because of its almost impossible implementation.³⁰ Instead, the idea of shifting the international monetary system from a system dominated by the dollar to one dominated by multiple currencies began to gain traction. Many Chinese scholars³¹ implicitly assume that the shift will happen by the time the renminbi is a full-fledged international currency.

The international monetary system is indeed changing, albeit slowly, as a result of changes in the world economic order, governance, and geopolitics. Having one dominant currency issued by the dominant economic and military power, as was the case in the second half of the twentieth century, may turn out to be the exception in economic and political history rather than the norm. Indeed, within the next ten to twenty years, both the renminbi and the dollar are due to become normal currencies. The renminbi’s use internationally, in both trade and finance, will increase, as will its relative weight vis-à-vis other key currencies. The dollar, in turn, will see less relative weight—in regions like Asia, in particular, but also in Latin America and Africa, where China is expanding its commercial presence and its investments.

However, inertia and network externalities (as discussed in chapter 5) will play a significant role in slowing the erosion of dollar dominance. Only an economy as large as that of the incumbent stands a chance of developing a network large enough to challenge the leading currency’s preeminence. True, China now has the critical mass—in terms of the size of its economy, exports, and now financial transactions—and the geopolitical influence to push its own policies and make an impact on the rest of the world. It has a strategy for the renminbi and a general policy direction. However, the renminbi has to go head to head against the dominant dollar. Will essential market infrastructure and a policy framework that encourages the use of the renminbi trigger strong enough demand from foreigners? And will foreigners be persuaded that China is a trustworthy partner—in terms of its leadership and policies?

Meanwhile, the dollar is facing challenges driven by anti-American sentiment and concerns about the use of fines, sanctions, and extraterritoriality imposed by the U.S. administration to push its own foreign policy agenda. Take, for instance, oil (although the example could be extended to other commodities: gold, silver, and aluminum as well as corn, wheat, soybeans, and cotton).³² Oil prices are almost exclusively quoted in dollars,³³ and this has been the case since the first drilling in the United States in the middle of the nineteenth century. In February 1975, an oil agreement was negotiated and signed between the United States and Saudi Arabia to ensure that the Organization of the Petroleum Exporting Countries (OPEC) priced its oil exports in U.S. dollars. Similarly, oil-importing countries across the world are required to pay dollars for the oil imported from OPEC members. The benchmark oil contracts—light sweet crude traded on the New York Mercantile Exchange (NYMEX) and the Brent contract traded at Intercontinental Exchange (ICE) Futures Europe in London—are also quoted in dollars.

But, increasingly, oil-producing countries, especially those outside the U.S. area of influence, are threatening to price oil in other currencies as a retaliatory measure. In October 2000, for instance, the Iraqi government, then led by Saddam Hussein, demanded to settle its petroleum exports in euros under the Oil-for-Food Program managed by the United Nations.³⁴ And since 2005, Iran and Venezuela have been trying to switch to the euro, even though all other OPEC member countries still trade in dollars. In February 2006, Iran announced its plan to establish an Iranian Oil Bourse, with the goal of competing with the NYMEX and London’s International Petroleum Exchange (IPE; now renamed ICE Futures). Later, in December 2007, Iran stopped accepting dollars for its oil and in February 2008 officially opened the oil bourse. In March 2008, the Venezuelan government opted to sign some oil contracts in euros rather than in dollars because of the decline in the value of dollar against the euro.³⁵ In January 2012, India held talks in Tehran to discuss alternative payment methods in the wake of the U.S. sanctions against Iranian oil exports. However, these threats have never looked credible because possible alternatives, like the euro and the yen, do not have enough influence in geopolitical terms, the former being a currency without a country and the latter being the currency of a country without an independent foreign and security policy.

Of course, U.S. sanctions and fines reach far beyond oil. In 2014, for example, a New York court fined French bank BNP Paribas $9 billion for violating sanctions and doing business in Sudan, Iran, and Cuba.³⁶ This has raised worries in the industry that foreign banks could be cut out of the dollar-payment system if they do not comply with U.S. guidelines and has stoked interest among sanctioned countries in promoting an alternative to the dollar. The use of the renminbi, and the new payment infrastructure that China is developing, is of particular interest to countries on which both the United States and the European Union have imposed sanctions—such as Russia, sanctioned in response to the Russian-led crisis in Ukraine. Russian companies are concerned about the risk of being locked out of the dollar market—and, to some extent, out of the euro market as well. They have been using the renminbi and other Asian currencies, and the chief executive of a Russian manufacturer that earns 70 percent of its export revenues in U.S. dollars has disclosed that “if something happens, we are ready to switch to other currencies, for example to the Chinese yuan or the Hong Kong dollar.” ³⁷ Information on exact volumes is very limited, but it seems that most of the renminbi trading on the Russian market is for contract settlements.³⁸

State-owned oil and mining companies, such as Gazprom and Norilsk Nickel, have been making provisions to denominate long-term contracts in renminbi.³⁹ In 2015, Gazprom Neft, Russia’s third-largest oil producer and the oil arm of the state-owned gas company Gazprom, began to settle all its exports to China in renminbi.⁴⁰ Russian banks—including JSC VTB Bank, Russian Agricultural Bank OAO, and Russian Standard Bank ZA—have so far raised a total of $482 million through issuances of renminbi-denominated bonds in the renminbi offshore market—mainly in Hong Kong.

All these activities, although interesting in geopolitical terms, have a marginal impact on international finance. For instance, the number of transactions in renminbi-ruble trading has been on the rise since early 2014, but the average monthly turnover is tiny, at approximately $300 million.⁴¹ Even in sanctions-stricken Russia, companies are reluctant to switch to the renminbi because of its limited liquidity and higher transaction costs, especially because U.S.- and EU-imposed sanctions still allow payments in dollars and euros for oil and gas sales.

The renminbi provides some diversification on the margin and remains a remote and fundamentally weak threat to the United States (although that hasn’t stopped the threat from being trumpeted in the American political debate, with some rather paranoid connotations: “Stop spend borrowed money! US dollar, here today…Yuan tomorrow,” read a sign on a bank in Franklin, North Carolina).⁴² So non-Americans still overwhelmingly prefer to hold dollars regardless of their opinions or concerns about the United States. During a discussion on the international monetary system that I held a few months ago with a group of senior civil servants in Hong Kong, one of them went on a long tirade against the dollar and, implicitly, against the dominance of the United States in Asia. “We hate the [U.S.] dollar,” she concluded, as her colleagues nodded in approval. When I pointed out the fundamental problem with her argument—China’s large holding of U.S. dollars revealed a preference for the American money—she acknowledged that it was a case of love and hate and concluded: “We love the dollar, but we hate the United States.”

In the end, the internationalization of the renminbi will increase its international use, and this will happen by reducing the relative weight of the dollar. But the ultimate role of the renminbi in the international monetary system will directly depend on how successful Beijing is in pushing forward financial and monetary reforms and in rebalancing its own economy. At the IMF–World Bank 2015 spring meetings in Washington, D.C., PBoC Governor Zhou promised that measures to improve the international use of the renminbi and “further increase capital account convertibility”⁴³ are in the pipeline. More channels will be opened to allow the flow of money to and from China’s domestic market, and capital movements will be made easier. However, as the discussion in chapter 9 has shown, these flows will be managed—and “managed” here does not simply mean that regulations and prudential measures will be occasionally applied. China is not ready to fully open its capital account because of the existing shortfalls in its banking and financial system. Capital-account convertibility Chinese style means that the liquidity that supports the renminbi will continue to be controlled by the PBoC. In addition, the Chinese monetary authorities will continue to manage the exchange rate. Thus, they will continue to push the international use of the renminbi through the implementation of measures that will allow capital to flow into and out of the country even without the full liberalization of the capital account, as was predicted by the British and U.S. models.

As long as domestic policy concerns and vested interests—such as banks, provincial governments, state-owned enterprises, and exporters—continue to act as brakes on reforms—and, of course, assuming the continuation of managed convertibility, the development of the renminbi as a full-fledged international currency and a significant player in the international monetary system will remain constrained. How quickly the renminbi will morph into a full-fledged international currency and how influential it will become directly depend on the pace and depth of domestic financial reforms.

As a result, Asia—where the renminbi has strong traction—is where it stands a chance to break the dominance of the dollar. The sheer size of China’s trade and the PBoC’s strategy of signing bilateral currency pacts with some of its major trading partners expanded the use of the renminbi as a settlement currency. In Asia, the renminbi can play a role largely similar to that of the euro in Europe and the dollar in the Americas. In this sense, Zhou is right to call for a new multicurrency monetary system in which the key international currencies are dominant in some regions but none is the monetary hegemon.

It will take some time for the renminbi to become a leading international currency in both trade and finance and a reserve currency. It will gain market share at the expense of the dollar, but this gain will be relative rather than absolute. In a study published in 2011, the IMF identified the renminbi as one of the three national-currency contenders that could challenge the dollar’s status—the other two currencies are the euro and the Japanese yen.⁴⁴ It does look like the renminbi will be one of the key currencies in a multicurrency international monetary system, but it will not be the dominant one.⁴⁵ In other words, the end of the dollar’s dominance will not mark the beginning of the renminbi’s dominance.⁴⁶

As I have discussed from chapter 6 onward, the renminbi is an international convertible currency insofar as the PBoC provides the necessary liquidity through designed channels—from the offshore centers to the free trade zones. China’s central bank will continue to facilitate such movements, and volumes will increase. However, as discussed in chapter 9, these flows will be managed, and “managed” here does not simply mean that macro-prudential measures will be occasionally applied. China is not ready to fully open its capital account because of the existing shortfalls in its banking and financial system, so mechanisms and quotas to control inflows and outflows need to be kept in place. Capital-account convertibility Chinese style means that the liquidity that supports the renminbi will continue to be controlled by the PBoC—and the Chinese monetary authorities will continue to manage the exchange rate.

The trajectory of the renminbi as one of the key international currencies is clear—and the IMF decision has reinforced it. Then the pace and scope of this development ultimately depend on how deep and how fast the Chinese leadership is prepared to push the reforms. As I have discussed throughout the book, there are several (often opposite) views and interests, and the one prevailing puts gradualism and control ahead of fast reforms and opening up. Therefore, the situation is likely to stay more or less the same for years to come as the pool of easy-to-implement reforms—the low-hanging fruit that I described in chapter 9—dries up. The progress of the renminbi in the years ahead, as a result, is likely to be less rapid.

The people’s money as an international currency is a work in progress that is contributing to the transformation of the international monetary system to reflect the changing dynamics of the world economy in the last thirty years—of which China has been both a significant element and a catalyst. To shape the renminbi strategy, the country is looking at history, but it is also rewriting history. There is no road map it can refer to because its experience is fundamentally different from those of other countries that have gone through a similar process. China is a developing country and also a world power, but unlike Britain and the United States in the golden era of their currencies, it is not a superpower. It is still a middle power in terms of income per capita and definitely an immature power with regard to its financial sector. It is run by an authoritarian central power, and its economy is a hybrid of planning and market. And, unlike Britain and the United States at the time of the emergence of the pound and the dollar, it cannot rely on anchoring the value of the renminbi to a commodity like gold. In navigating its way forward, it is crossing the river by feeling the stones.