(Transcribed from recordings, with some edits)
China’s reform and opening-up highly coincides with the wave of globalization. When China deeply integrates into the global market, it inevitably receives significant impacts from globalization which features increasing financialization and speculation. Amid this process, China’s position in the international monetary system profoundly affects its own development.
The concept of “seigniorage” should be emphasized here. Traditionally, it is a financial term referring to the revenue a state gains from issuing currency. However, in specific contexts, it concerns not only fiscal income, but also monetary and financial stability, as well as the choice of economic development path.
From the global perspective, the era of globalization has seen prolonged economic stagnation and divergence. Apart from China, most Global South countries are experiencing growth significantly lower than pre-globalization levels and below that of developed countries. Such divergence comes from the decline of global productive investment. In contrast, China stands out from other developing countries in this regard, and this is closely related to its financial environment.
Since the launch of reform and opening-up policy, China’s credit supply has expanded in tandem with the country’s economic scale. The ratio of broad currency to GDP has risen steadily while not triggering severe inflation. This advantageous monetary sovereignty has underpinned economic transformation amid persistent fiscal deficits, enabling China to maintain a production-oriented growth model during its transition from command economy to mixed economy. Consequently, China has sustained high-speed growth over many years while keeping inflation under control.
However, the challenge of external dependence on the U.S. dollar persists. On one hand, China has become the world’s largest productive, trading and industrial economy, with manufacturing added value overtaking that of major European and American nations. In 2012, the value even neared the combined total of the G7 countries. On the other hand, the Chinese RMB’s share in international reserves and trade settlements remains low, insufficient to effectively underpin China’s foreign economic and trade activities. The dependence on the U.S. dollar incurs multiple costs, including financial seigniorage and additional risks when dollar hegemony is leveraged for national interests or weaponized.
For instance, from 2015 to 2016, China experienced severe capital flight, with the most conservative estimates reaching 600 billion USD. The capital outflows not only fueled asset bubbles and financial risks, but also dragged manufacturing enterprises into financial speculation, exacerbating the secondary financialization. This has been a key factor behind the stagnation of productive investment – private investment in particular – and the gradual economic slowdown over the past decade. China’s annual real GDP per capita growth averaged over 8% from 1978 to 2012, but dropped to around 5% subsequently with increasing difficulties to maintain this pace.
This situation has constrained the autonomy of monetary policy, amplified dependence on the U.S. dollar and vulnerability to external shocks, and exacerbated the global long-term suppression of productive investment. As China deeply integrates into the world market, this has become an issue that must be confronted.
Therefore, the question for China and the Global South is not whether to de-dollarize, but how to confront the high risks and costs stemming from dollar hegemony and its weaponization. This is an inescapable reality demanding urgent solutions for a fairer, safer and more autonomous international monetary system.