serve (only) the people’s currency?

My one brand, two systems cup of java has me thinking about the manipulation of national currencies in an international economic system. In particular, I reviewed what I knew and didn’t know about the rise and fall of 外汇卷 (foreign exchange certificate) as opposed to 人民币 (the People’s currency). FEC circulated from the early 60s through January 1, 1995, when the government began phasing it out, completing the process on Dec 31, 1996, just in time for Hong Kong’s Return.

Now, China’s FEC is interesting because before 1980, Chinese citizens were not allowed to hold either FEC or foreign currency, while after 1980, they were. During the Mao-era, all private citizens and work units had to change foreign currency for FEC at the Bank of China. However, even after 1980, when it was legal for Chinese nationals to hold foreign currency, FEC continued to circulate. Moreover, even foreigners who came to China were required to use FEC to buy luxury items at Friendship stores. What I’m trying to figure out is why?

According to a friend, the answer is simple: China didn’t have enough foreign cash reserves and need to accumulate as much as they could by controlling its domestic availability and circulation. He offered the example of the Daya Bay Nuclear Reactor, which was built with French technology. The loan used to purchase this technology was secured by a Hong Kong company because the energy ministry’s had neither the reserves nor the credit to secure a loan. On this reading, Deng Xiaoping’s exhortation that Shenzhen pioneers would have to secure investment capital — especially foreign currency — through their own initiative seems unexpectedly honest.

This answer led to conversation about other forms of currency during the era. Of note, the difference between national grain coupons (全国粮票), which could be redeemed anywhere in the country and local grain coupons (地方粮票), which could only be redeemed where issued. Apparently, a 5 jin national grain coupon was particularly valuable as it could be traded both for eggs and sex. Also mentioned was a Shanghai businessman, who in the early 80s made a fortune by buying government bonds (国债) in Nanjing and them redeeming them in Shanghai because although the face value of the bonds were the same, if the bonds were redeemed early, the exchange value was higher in Shanghai than in Nanjing.

FEC entered individual hands as foreigners came to China and needed to trade their foreign currency for FEC in order to purchase items. Yes, they could use RMB to buy items in free markets, but many foreigners who came to China in those early years report that Chinese wanted their FEC and sometimes would not do business with them unless it was for FEC. Consequently, less than a year after it became legal for individuals to hold FEC, Steven Mosher reports that there was a black market for FEC. Tellingly, by 1983, there were already couplets about Four Modernizations for cadres (owning a modern TV, tape recorder, wrist watch, and calculator), which could be purchased with FEC and the Four Modernizations for the people (hearing about, talking about, thinking about, and gazing at modernization).

Shenzhen in particular has had an interesting relationship with FEC because of access to Hong Kong dollars. Before Reform, the area was a springboard to directly enter the Hong Kong economy. However, by 1979, the Center began to consider issuing Special Zone currency because HK dollars were already circulating in the SEZ. Indeed, by November 1981, it was estimated that 8 million HK dollars were in circulation accounting for 10% of available currency in Shenzhen. By 1984, the idea of Special Zone currency had gained momentum and currency was designed because the black market exchange rate had reached 100 RMB for 63 Hong Kong dollars, well above the official exchange rate of 23.7 RMB for 100 HK dollars. Nevertheless, the following year, the Central government rejected the idea of Special Zone currency on the recommendation of Hong Kong banks — using Hong Kong dollars was good for business in the region.

I came to China before FEC was phased out, but never used it. In fact, I didn’t see actual FEC until recently and only because it is now of interest to collectors. Instead, I along with most of the folks, foreign and Chinese, living and working in the Pearl River Delta used Hong Kong dollars for transactions that in Beijing or Shanghai would have required FEC. In 2001, for example, Kenneth Chan estimated that 7.2 % of printed Hong Kong dollars circulated in Guangdong Province, assuring his readers that this amount of currency outside its home borders was insufficient to destabilize the Hong Kong economy.

So what happened after FEC ceased to exist in 1997? The yuan was then pegged to the US dollar, with an exchange rate of 8.3. However, on July 21, 2005 the yuan began to float against the US dollar, gaining in strength even as  real wages continue to decline. A  graph of the Chinese Yuan/US Dollar Exchange Rate Index, below:

Chart available, here, courtesy of Future of US-China Trade.

11 thoughts on “serve (only) the people’s currency?

  1. Are these vignettes on FEC, RMB and HKD examples of some variation of Greshams Law or the reverse of Gresham’s Law (Thier’s Law) at work here?'s_law#Reverse_of_Gresham.27s_Law_.28Thiers.27_Law.29

    Note that Gresham’s Law strictly speaking is about commodity money (like gold, silver or copper coins) whereas FEC, RMB and HKD are all forms of fiat money.

    At the end of the day, the FED, RMB and HKD are all dollarized units of currency (whose value is rooted in the US dollar).

    I remember using FEC in Friendship Stores and roadside markets in the 1980’s. What an experience it was then! All the streets of Beijing filled with men loitering around doing nothing. Was life easier then…?

  2. In terms of understanding economics, I tend to follow David Graeber because he explains capitalism in moral terms that I intuitively get. In contrast, I find it counterintuitive to worry about why the weight of gold actually matters other than as a way of counting and comparing — the value of gold is what we make of it, theories of good and bad money notwithstanding.

    In Toward an Anthropological Theory of Value, Graeber argues that value has three aspects: (1) it is an abstract good, which is understood to make life meaningful — beauty, for example; (2) it is a way of making semiotic distinctions at the yes/no level — the not beautiful; and (3) it provides means for discrete differentiation within its own boundaries — the apple of discord moment. I’ve gone with beauty, but the point is that a society can hold any value as its highest abstract good and then find a form for representing it as a yes/no statement as well as technologies for making distinctions and ranking judgments. His work inspired me to write “The Cultural Politics of Eating in Shenzhen”. If interested, I can send you a pdf of the essay.

    Money is only one possible way of organizing collectively held value/s. It could represent the highest value of making sure everyone in a society gets what they need. In Debt, Graeber explores the idea that money is actually about organizing levels of social trust and distrust. Traditional societies were organized around forms of credit that unfolded over time. (Crude example, hunters distributing meat to tribal members and be given grain or nuts sometime in the future, but also realized through family communism. Children don’t purchase dinner from their parents, for example, but rather as they age return different forms of care.) In this sense, all money is Chartalist or fiat money because it is organized socially. Graeber has great stories about fifteenth and sixteenth century shops and even widows issuing their own money, which were remarkably like my Starbucks coupon — traded within a defined territory and recognized only by the issuing agent.

    The problem with capitalism as we’re currently practicing is that our money represents the abstract idea of “profit”. In turn, using money — especially that pegged to the US dollar — becomes the yes/no moment of accepting this system. Within our current world system system, different currencies provide means both for ranking territorial participants with respect to each other and, within those territorial units, ranking people with respect to each other. In fact, we see the terrifying results of this system in austerity measures that repay money at the cost of social services and educational programs. Social services and educational programs take the quality of human life as their highest goal; in ugly contrast, austerity programs take the interest and profit of banking institutions as theirs.

  3. Mary Ann
    Thanks for your informative reply.

    When I first read your various stories about the FEC / RMB / HKD versions of the people’s currency, I had wondered how you might mesh these observations with Graeber’s views.

    After you mentioned him last time (, I searched him and found this very informative interview at naked capitalism blog:–-an-interview-with-economic-anthropologist-david-graeber.html

    I especially enjoyed this:

    “David Graeber: Yes there’s a standard story we’re all taught, a ‘once upon a time’ — it’s a fairy tale.

    It really deserves no other introduction: according to this theory all transactions were by barter. “Tell you what, I’ll give you twenty chickens for that cow.” Or three arrow-heads for that beaver pelt or what-have-you. This created inconveniences, because maybe your neighbor doesn’t need chickens right now, so you have to invent money.

    The story goes back at least to Adam Smith and in its own way it’s the founding myth of economics. Now, I’m an anthropologist and we anthropologists have long known this is a myth simply because if there were places where everyday transactions took the form of: “I’ll give you twenty chickens for that cow,” we’d have found one or two by now. After all people have been looking since 1776, when the Wealth of Nations first came out. But if you think about it for just a second, it’s hardly surprising that we haven’t found anything.

    This is like so many “foundational myths” of the modern world — not based on any actual historical record, but some rhetorical argument that arose at some point in history and that has entered the general consciousness and become accepted as historical truth. Many economic texts will mention some version of this story, and it seems to be the popular explanation of why money exists.

  4. Graeber elucidates further on the “invention of money myth” here and why economists insist on telling it even if they concede it is untrue.–-notes-on-sex-adventure-monomaniacal-sociopathy-and-the-true-function-of-economics.html

    But once you get the debunking of popular myths out of the way, the really interesting thing he says about the origins of money is this:

    “How did this happen? Well, remember I said that the big question in the origins of money is how a sense of obligation – an ‘I owe you one’ – turns into something that can be precisely quantified? Well, the answer seems to be: when there is a potential for violence. If you give someone a pig and they give you a few chickens back you might think they’re a cheapskate, and mock them, but you’re unlikely to come up with a mathematical formula for exactly how cheap you think they are. If someone pokes out your eye in a fight, or kills your brother, that’s when you start saying, “traditional compensation is exactly twenty-seven heifers of the finest quality and if they’re not of the finest quality, this means war!”

    Money, in the sense of exact equivalents, seems to emerge from situations like that, but also, war and plunder, the disposal of loot, slavery. In early Medieval Ireland, for example, slave-girls were the highest denomination of currency. And you could specify the exact value of everything in a typical house even though very few of those items were available for sale anywhere because they were used to pay fines or damages if someone broke them.

    But once you understand that taxes and money largely begin with war it becomes easier to see what really happened. After all, every Mafiosi understands this. If you want to take a relation of violent extortion, sheer power, and turn it into something moral, and most of all, make it seem like the victims are to blame, you turn it into a relation of debt. “You owe me, but I’ll cut you a break for now…””–-an-interview-with-economic-anthropologist-david-graeber.html

  5. This might be oversimplying Graeber, but in some sense, all who exist in a money system live under a continual threat of violence. If violence lies at the heart of the creation of money, what does it mean to those who use, exchange, receive (earn), stockpile (save), borrow, give away and steal money?

    “And, I might add, if Aristotle were around today, I very much doubt he would think that the distinction between renting yourself or members of your family out to work and selling yourself or members of your family to work was more than a legal nicety. He’d probably conclude that most Americans were, for all intents and purposes, slaves.”–-an-interview-with-economic-anthropologist-david-graeber.html

    What keeps the violence at bay is to accumulate enough money so as to “buy one’s freedom”. In the US this has a name that cuts through all that “nicety”. It’s called this:

    The following parable illustrates what one who exists under a money system has lost without really knowing:

  6. The parable goes like this:

    A few years ago, a very rich businessman decides to take a vacation to a small tropical island in the South Pacific. He has worked hard all his life and has decided that now is the time to enjoy the fruits of his labor. He is excited about visiting the island because he’s heard that there is incredible fishing there. He loved fishing as a young boy, but hasn’t gone in years because he has been so busy working to save for his retirement.

    So on the first day, he has his breakfast and heads to the beach. It’s around 9:30 am. There he spots a fisherman coming in with a large bucket full of fish! “How long did you fish for?” he asks.

    The fisherman looks at the businessman with a wide grin across his face and explains that the fishes for about three hours every day. The businessman then asks him why he returned so quickly. He’s worried that all the fish are gone.

    “Don’t worry”, says the fisherman, “There’s still plenty of fish out there.”

    Dumbfounded, the businessman asks the fisherman why he didn’t continue catching more fish. The fisherman patiently explains that what he caught is all he needs.

    “I’ll spend the rest of the day playing with my family, talking with my friends and maybe drinking a little wine. After that I’ll relax on the beach.”

    Now the rich businessman figures he needs to teach this peasant fisherman a thing or two. So he explains to him that he should stay out all day and catch more fish. Then he could save up the extra money he makes and buy and even bigger boat to catch even more fish. The he could keep reinvesting his profits in even more boats and hire many other fisherman to work for him. If he works really hard, in 20 or 30 years he’ll be a very rich man indeed.

    The businessman feels pleased that he’s helped teach this simple fellow how to become rich. Then the fisherman looks at the businessman with a puzzled look on his face and asks what he’ll do after he becomes very rich. The businessman responds quickly without missing a beat, “You can spend time with your family, talk with your friends, and maybe drink a little wine. Or you could just relax on the beach.”


  7. But why don’t people live like the simple fisherman in this story? Why become enslaved to money? Well, it’s not like you can really help it. The following looks at 2 relevant historical incidents at the time of the English settlement of North America, that gives some incident in how this slavery came into being:

    Red Albion: Genocide and English colonialism, 1622–1646
    by Kruer, Matthew, M.A., University of Oregon, 2009, 179 pages; AAT 1471481
    Abstract (Summary)
    This thesis examines the connection between colonialism and violence during the early years of English settlement in North America. I argue that colonization was inherently destructive because the English colonists envisioned a comprehensive transformation of the American landscape that required the elimination of Native American societies. Two case studies demonstrate the dynamics of this process. During the Anglo-Powhatan Wars in Virginia, latent violence within English ideologies of imperialism escalated conflict to levels of extreme brutality, but the fracturing of power along the frontier limited Virginian war aims to expulsion of the Powhatan Indians and the creation of a segregated society. During the Pequot War in New England, elements of violence in the Puritan worldview became exaggerated by the onset of societal crisis during the Antinomian Controversy. The resulting climate of fear unified the colonies and created an ideological commitment to the genocide of the Pequots.


    “This thesis argues that the extreme levels of violence that characterized early Anglo-Indian conflict, up to and including genocide, were inextricably linked to the basic process of colonization. The new English society that colonizers planned to build could not inhabit the same space as the Native American societies that were already there. The success of the colonial project was therefore predicated on the disappearance of indigenous peoples, a basic structural relationship that Patrick Wolfe calls the “logic of elimination.”19 The need to eliminate Native Americans virtually guaranteed conflict between Indians and colonists. Aspects of the English worldview led them to devalue Native American societies, beliefs, and practices, thereby intensifying violence during the resulting wars. In most cases these conflicts were self-limiting, and colonists ceased hostilities once they had achieved the elimination of Indians through territorial expulsion. However, extraordinary circumstances—when the colonists experienced a sense of overwhelming crisis—resulted in what A. Dirk Moses calls a “genocidal moment.” The colonists then focused their sense of collective fear on a single target, unleashing the terrible violence within their worldview through a sustained commitment to the destruction of their enemy.” (pp 11-12)

    “In the latter part of the sixteenth century the people of England began to awaken to the idea of empire. Though latecomers to the imperial stage, the English looked west to the lands of the New World and saw the makings of a rich future. Apostles of imperialism, such as the two Richard Hakluyts, articulated for their countrymen a comprehensive rationale for “planting,” as they referred to colonization projects. They argued that colonies would enlarge the royal domain, enrich the commonwealth through commerce, swell the ranks of the army and navy, help the nation defend its honor against imperial Spain, and bring glory to God through the spread of Protestant Christianity.2 Writers often clearly phrased the call to empire in the stark language of finance, diplomacy, and war; but the budding movement across the Atlantic was also animated by more subtle currents that stirred dreams of extraordinary power and emotional resonance. Forging an empire brought material advantages, but it also evoked visions of revitalization and renewal. Samuel Purchas, the Hakluyts’ intellectual successor, imagined colonization as a singular act of creation and called upon his compatriots “to plant another England in America.”3 The idea of a land reshaped into a new Albion was as complex as it was single-minded and as ambiguous as it was powerful. It was, at heart, a vision of total transformation: a new creation built on the ruins of what came before it, a vision pregnant with the threat of violence. ” (p 14-15)

    (I have not read the whole thesis – just the free preview – but I think I got the general idea)

    • Hi Perspectivehere,

      Thank you for bringing Graeber so explicitly — and more accurately — into the conversation. Yes, by using money as an example I misrepresented the argument. His point about value and how it is created held for different symbols; money as he thinks about it in debt is about postponing violence until we can’t pay anymore and then we pay with our lives. Or those of our family. In Debt, the story of how the conquistadores were themselves violently indebted is both frightening and illuminating. Have you read Mic Taussig’s The Devil and Commodity Fetishism in South America”? He shows graphically how that history is still lived in horrifying ways. As for Aristotle’s image working for money making one a slave, that is explicitly referred to in contemporary Mandarin, where people are “房奴” or “mortgage slaves”, which come to think of it appears in English as well.

      The other day, I was talking with a friend about my parents’ monthly payments, including health insurance, mortgage, and daily necessities, and she concluded, “It’s still the case that socialism is the better system.” Her answer is interesting because she has been one of the first to get rich in Post-Mao China and struggles with the moral obligations of having so much more than everyone else, not only other family members, but also the rest of society. She’s a generation 60 intellectual, which means she was a child during the CR and advocates technocracy in terms of politics and a kind of paternal socialism for the rest of society. In fact, she frequently jokes that I am a “foreign peasant” and there’s a level at which she’s not laughing, but bemused. After all, she seems to be wondering, how is it an American can live like I do. That said, my friend resolves the contradiction between her moral values and economic position in neo-Confucian ways — picking up the tab, unless the person she’s with has more money than she does, supporting her parents’ retirement, and generous contributions to philanthropies, for example. However, the conundrum remains because she continues to invest in large real estate projects that involve, among other things, the violent displacement of people and low working wages.

    • Yes! The moral optimism of anthropology. Thank you for introducing me to Jason Antrosio, a wonderful way to begin my virtual day.

  8. Hope you like it.

    Here’s the unembedded video: Gillian Tett, US Managing Editor of the FT (and Phd in Anthropology!) giving the Anthropology in the World Conference 2012 Keynote Lecture.

    She talks about how she fell into journalism and her interest in the foreign currency and credit markets, and how being an anthropologist gave her a valuable and unique perspective, and what anthropologists can offer to the world today.

    I started out predisposed to dislike her because I’m turned off by the smug know-it-all tone and neo-colonial ideology of the FT, but I actually found her quite compelling and came around to respecting her.

    In the video she mentioned the work of anthropologist Karen Ho.

    I bet you’d have a lot of fun talking with these people. I envy you Anthropology PhDs.

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