A recent blog article by Nasos Mihalakas, entitled China’s Efforts to Internationalize its Currency resonated strongly with the recent course readings I have been doing for Mounira Maya Charrad’s course on Comparative Historical Sociology. In this class we have been working our way through Barrington Moore’s magnum opus, Social Origins of Dictatorship and Democracy: Lord and Peasant in the Making of the Modern World.

Moore’s central argument builds on a Marxist class analysis framework, arguing however that there are no foregone conclusions when it comes to the origins of political regimes and that the particular material economic and political conditions of a country at a crucial historical moment will largely determine whether the outcome is something akin to democracy, fascism or communism.

Although the foreign meddling of Europe in China’s politics and economy is not a central feature of the more domestically oriented argument in his chapter on China, he does remind us of how quickly the Chinese Imperial system crumbled in just a century and how the margin for manoeuvre of the rulers at that time was severely restrained by onerous treaties imposed by the British, which basically placed Chinese foreign economic and trade policy in the hands of foreign capitalists.

The current situation is somewhat ironic then, in that China has full control over their economic and fiscal policy and Europe and the United States have been complaining for some time about its policies to keep China’s currency (the “Renminbi”) artificially low by pegging it to the dollar and tightly controlling currency circulation within China.

While this has served China well for export-led growth, it seems China’s government believes this reliance on the dollar has led to some of the recent instabilities in the world economy, and we may be entering a new era in which Chinese currency is becoming increasingly internationalized as a possible counter-balance or alternative currency to the dollar.

This has major implications for the world economy in the current globalized context, but its dimensions could not possibly be fully understood without some reference to the historical context of the past two centuries and how China’s economic and trade policy was run at that time, something which Barrington Moore makes abundantly clear.

This short post isn’t a sufficient space to flesh out these ideas further, but this brief excerpt below gives an idea of the main thrust of Mihalakas’ article, and I thoroughly recommend a look at Barrington Moore’s Chapter IV: “The Decay of Imperialist China and the Origins of the Communist Variant.”

The Chinese government pegs the RMB to the dollar so the powerful and wealthy export sector can continue selling in Europe and America (and thus employment stays high).  The government also maintains strict capital controls in order to prevent inflation from hurting the vast lower and middle class.  China’s currency has become a modern-day opium, and the authorities have been searching for a way out of their current economic model which relies on growth from an undervalued currency and capital controls.  Internationalizing the RMB offers one such exit.

Eventually, wider use of the RMB outside China could redefine the balance of power in global currency markets, as the rest of the world begins trading more RMB-based assets and settling its bills with China in RMB instead of the U.S. dollar.  Beijing gets to keep its currency system, while gaining economic leverage and diplomatic legitimacy around the world.

See the link to Mihalakas’ article above.

Of course, more recent scholarship is also necessary to bridge the gap between the pre-communist and the current hyper-capitalist phases of China’s history. Still, the historical comparison seems an interesting one.