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56 already evident in the East Asian Region, and a number of key Southeast Asian countries
currencies are now linking their exchange rate more in tandem with the Renminbi’s value than with the United States. This means more freedom in Chinese monetary policy from foreign evaluations (2011).
Lastly, this case is chosen because it is generally difficult to prove instances of monetary power. As outlined chapter two, this is one of the benefits of monetary power as a form of economic coercion; however, it does make it exceedingly difficult to study because it is hard to identify when it is being used. This case is really the only case after the 2008 global financial crises that we can definitively say China’s government chose to influence the Renminbi’s value, and study what effect that is having on the United States economic policy. If it were easy to prove China’s currency manipulation, there would probably be a clearer and more unified U.S.
response. Instead of engaging in the unsubstantiated claims of politicians and United States media outlets that China is undervaluing its currency, or following the Chinese government line that China’s low exchange rate is a result of many other factors outside of the governments control, and choosing a less clear case picked out of the bias perspective to achieve the desired result, this research takes the opposite approach of finding the most clear example of currency reevaluation and extrapolating what role China and the United States played. Furthermore, there are few proven instances of monetary power on the side of China, this not only makes studying Chinese monetary power difficult, it begs the question why doesn’t China press harder on its advantage?
4.3 Chinese Grand Strategy
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57 It is prudent to begin with an analysis of Chinese grand strategy with an eye toward their monetary policy and the centrality of the Renminbi. It is far too broad to go too deep into through the mysterious motivations of the Chinese government from South-China sea to energy security; for this research it is sufficient to look at Chinese Grand Strategy to answer the question that Cohen lays out for analyzing a country’s aims in utilization of international monetary power:
Are they seeking influence or autonomy? According to Cohen, influence is defined as “the ability to shape events or outcomes” naturally this means, to a certain extent, controlling to behavior of other actors. Cohen goes on to say: “An actor, in this sense, is powerful to the extent that it can effectively pressure or coerce others; in short, to the extent that it can exercise
leverage or managerial authority. As a dimension of power, influence is the essential sine qua non of systemic leadership.” That is to say that influence is a necessary condition to a country wanting to control a system or achieve currency centrality. This is in contrast to autonomy in that, autonomy is “power as a capacity for action”. This is the same as have the freedom to control one’s own monetary policy without being overly concerned about other countries’
reactions. Cohen says, “in this sense, power does not mean influencing other; rather, it means not allowing other to influence you – letting you have your way” (B. j. Cohen, 2008, p. 457).
From a certain perspective, it can be difficult to assess what the objectives are for the Chinese government; however, there are prerequisites to a country achieving either – or both because the two forms of Cohen’s international monetary power aren’t mutually exclusive – influence or autonomy. Therefore, in this section we can follow Chinese monetary policy to assess whether influence or autonomy is getting the higher priority. Kirshner, himself, recognizes the importance politics and the Chinese government’s preferences will play in the future of the Renminbi stating, “the outcome will be determined more by politics than
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58 economics, as both the RMB ‘optimists; and ;pessimists; explicitly recognize (Helleiner &
Kirshner, 2014). If China was seeking more influential international monetary power and the centrality of the Renminbi it would necessitate deep financial reforms allowing the currency to be held in more liquid markets with full currency convertibility (Subramanian, 2011). Likewise, if China is seeking more autonomy in its international monetary power there will be more policies to reshape international economic structures set up by the United States to if not take away United States advantage, then to voice more of their concerns and allieviate a certain Chinese disadvantage. Also, China would move to uncouple their currency from the dollar giving maximizing monetary policy autonomy.
Understanding Chinese priorities is very much a practice of following the changes in economic realities, again this is why a most recent, post-2008 global financial crises case is necessary. In the past China has played an important role in supporting the status quo, “with its accumulation of massive dollar reserves, China has reinforced the dollar-based international monetary order” (Helleiner & Kirshner, 2014). This is representative of a time in which Chinese upholding of the system was beneficial to their own development. At that time, China was in little position exercise influence. It is easy to say that purchasing the vast dollar reserves China has become known for was an effort to accumulate autonomy, wherein as Cohen explains, there is a quiet power in having enough reserves to decide when currency reevaluation occurs. Cohen points out that China has long been the target of United States (and others) to revalue their currency. China has largely ignored these pleas, cushioned by their large reserves the Renminbi
“appreciated in small steps by little more than 15 percent – far short of what most overserves think is needed to make a real dent in China’s trade surplus” (Cohen, 2008).
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59 For relevant comparison, the China’s rise and the Renminbi’s threat to the dollar’s
supremacy is often compared to the Yen during Japanese explosive rise in 1970 or even to Germany before that. Dollar depreciation forced re-evaluation resulting in the Yen doubling in value from 160 yen per dollar to 60 (Hamada & Patrick, 1988). Chinese large dollar reserves as well as the centrality of their holdings under a state-controlled financial system has buffeted such power (Helleiner & Kirshner, 2014). This seems to underpin the argument that China is seeking autonomy in its monetary policy rather than influence over the United States, although it is tough to say this was calculated or just smart investment since the dollar is both stable and the most liquid currency holding.
More significant and definitive in terms of determining Chinese priorities was the government actions during the 2008 global financial crisis. Financial instability and dollar weakness meant that China had their first opportunity to play destabilize the system or at least play spoiler by denying further investments. Instead, much as it did during the Asian financial crisis, China opted for stability. China instead came to the systems rescue providing crucial support for the dollar, providing further funding for the deficits the United States would need to deepen for the economic bailout and recovery (Helleiner, 2014). This provides compelling evidence that China’s priority is not on wielding influence, but on stability. Daniel Drezner claims the most that China asked for was guarantees on existing investments and assets, and that none were given. China and the United States acted in common interest, a bailout was given helping the United States economic recovery while also protecting Chinese Sovereign wealth investments in United States banks (D. W. Drezner, 2009). Again, this is less a strong show of influence and leverage and more of the passive power Cohen alludes to in his assessment of
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60 monetary autonomy that comes with little risk, but provides protection during uncertain
economic times and instability.
Since the global recession though, many scholars see more assertiveness in Chinese international monetary policy and their accumulation of monetary power. Sticking with this researches basis of analyzing Chinese strategy, it can be difficult to assess whether this is an effort to solidify its monetary autonomy or a power grab to increase influence and help the Renminbi establish itself as the world’s central currency. Indeed, not long after the worst of the financial turmoil was over, and economic recovery was still fragile; Zhou China’s central bank governor released an essay, “Reform the International Monetary System” calling into question the stability of a world monetary system relied so heavily on the dollar. While some scholars saw this essay as a termination notice on dollar’s supremacy, a close reading suggests concerns about the systems inherent conflict that puts domestic monetary goals at the whim of the dollar currency market, which is particularly burdensome to developing economies. Instead, Zhou’s qualms with the international monetary system are more theoretical (based on the Triffini
Dilemma) having to do with problems of autonomy. Idealistically he proposes, “an international reserve currency that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national
currencies (zhou, 2009). It seems that his call is less for an international monetary system built out of and to the benefit of the renminbi’s influence; instead, it is a call for greater autonomy and balance, brought about by “gradual change that built on past efforts to strengthen the IMF’s Special Drawing Rights” (Helleiner & Kirshner, 2014).
Taken chronologically, since the beginning of China’s rise, after 2001 when China joined WTO and the renminbi’s internationalized beginnings, the Chinese government has placed its
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61 priorities on autonomy and monetary stability over accumulating or exercising fleeting
opportunities for influence. However, there is another level of analysis, beyond that of follow monetary policy and extrapolating intentions, that also lays credence to the argument that
China’s priority and monetary strategy is placed on stability and autonomy as well. The Chinese Communist’s Party’s power is largely legitimated by China’s continued GDP growth and
economic stability. “The leaders of Chinese Communist Party are especially sensitive to
encroachments on their policy autonomy, and place a great premium on stability, which suggests that they will be anxious about the extent to which they loosen their control over their currency.
This will shape the future of the RMB” (Helleiner & Kirshner, 2014). China is well acquainted with economic turmoil and the devastation, both for the common people and political elites, and keeping that uncertainty and instability at bay is of paramount concern. Steinberg, furthers this argument saying, “Two different types of political actors are likely to advocate for reserve accumulation: those whose careers depend on financial stability and those with stakes in export-oriented industries” (Steinberg, 2014). Of course both of these point to China.
Understanding the history of Chinese monetary policy helps explain why there are few instances of overt efforts to utilize leverage to influence foreign countries policy. Such action could trigger retaliation destabilizing the world monetary system. This is quite opposite of what China has shown to be its priority for over twenty years. However, this does lead to the 2014-2015-renminbi reevaluation as well as the selling off of United States Treasuries, and the renminbi’s rise to world reserve status. This, seemingly, is a departure from the past intentions of establishing autonomy in monetary policy and domestic influence, and more of an exercise of influence and push for renminbi centrality. Actually as is shown in the next section this is more of an exercise in the new autonomy China has found in its domestic monetary policy, and the
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62 objectives largely remain the same: stability both economically and politically, at home and abroad; strategic uncoupling from the United States; grow domestic economic strength.