Image of author Source: Hudong
By Zhang Bangsong(张邦松)
EO Book Review, March 2012, Pages 14-17
Original Text: [Chinese]
Although not recognized as an academic source, the Currency Wars series 《货币战争》by Song Hongbing (宋鸿兵) is very popular amongst readers. Song considers himself an “international financial scholar,” who sees economics in terms of “war”. He believes economics is only part of the political game rather than a theory or science.
He accounts for his unpopularity amongst mainstream economists by saying that it’s understandable that “economists would reject a new system that challenges their monopolistic knowledge system.”
In his books, Song tries to explain history and the development of the world through the perspective of currencies and finance. He says that “although history doesn't simply repeat itself, the humanity reflected in different periods is surprisingly similar.” Song hopes to find a solution for the development of the world.
In his interview, Song mentions that Chinese people in the past didn’t concern themselves with the currencies. Money, trade and the relationship of finance and trade have been neglected for thousands of years in China.
[This interview has been edited for length and clarity.]
The Economic Observer: What drove you to write the Currency War Series?
Song Hongbing (宋鸿兵): I have lived in the U.S for 14 years and spent over 20 years in China. If China wants to become a world power like the U.S., it must focus on becoming more than just a military power. The main competition between the two countries will be the economy and finance, instead of the traditional military or war. The longer I reflected, the more I realized that the financial power of the US has been underestimated by most people.
All of my books try to explain the history and development of the world from the perspective of currency and finance. Chinese people are not very concerned about money, and we have been neglecting money, trade and the influence of finance on trade for thousands of years.
EO: What do you mean we didn’t realize the importance of money?
Song: Since the 1940s, there have been few opportunities for Chinese to gain experience in finance. As a rising economic power, China may suffer losses in the international competition if we aren’t knowledgeable in finance. This is why I combined the two notions of “currency” and “war”. When I initially proposed this concept, people were confused and asked, “how could a war break out between currencies?” However, as people became more aware of the world’s economic environment, they started accepting the possibility.
There is no systematic research on the competition of currencies and money in China. Only monetary theories or economics are studied. China has neglected the importance of finance as a tool, a measure and a weapon, which could be vital for her development, economy and national security in the future. Therefore, my central point in all four books is actually the influence that money has on the fate of a country and the world.
EO: What’s have you found?
Song: Based on a recent survey that I did at ETH Zurich University, we analyzed the equity structure of 37 million transnational enterprises and found that 147 of the biggest financial institutes exercise control over 37 million enterprises. Furthermore, there are 20 or 30 big holding groups behind these 147 institutions. This shows how the minority financial holding companies at the top of the pyramid are actually controlling most of the transnational groups in basic materials and energy.
The survey has proved my hypothesis in the book Currency War II. There were 60 families controlling over 60% industries in the US, despite their recent disappearance from the world fortune ranking since 1940. Why did they disappear, you may ask? Is it because of war? Keep in mind, however, there has been no war on U.S. soil since then. I have the sense that at that time the major and vital enterprises in the world were still controlled by a minority of families. Large banks and enterprises are actually very centralized. Many big financial families set up funds and donated their fortunes, especially after 1930. What they want is the control instead of the ownership. Although there might be some philanthropists, the common practice of setting up charity foundations doesn’t seem logical to me.
EO: The world is really messy now. Your fourth book is “The Warring States Period”. Who do you think will be the “winner”?
Song: According to the current situation, the U.S. and Europe are the first and second countries that are most likely to succeed. Comparatively, China is not yet at the same level. The competition for leadership of the world economy therefore is mainly between the US and Europe. Although China is also willing, the country isn’t yet as competent.
EO: Your answer is very different from others. Can you explain why?
Song: In my opinion, China is still very fragile, not only in an economic sense, but in general too. The huge economic edifice that we’ve constructed has a very fragile base. How can we say we are a world power if the energy and materials are not domestically sufficient and trade is mainly dependent on the foreign market. For a real rising power, its domestic economy should be much bigger than its dependence on the foreign market, as shown in the rise of America. Before it entered the Second World War in the 1930s, only 2% to 3% of its economic growth was attributed to foreign markets. In other words, the U.S. didn’t need an external market, and on the contrary, foreign markets need the US. Even today when the State has become a huge empire in the world, foreign trade only accounts for 8% of its GDP, but the figure for China is up to 30% [chart]. Only when the country isn’t dependent on others can it lead its own way.
EO: In your supposed era of warring states, does China have a decisive role?
Song: I’m not so pessimistic about that. The core idea is that a large domestic market is the base for a country’s ascent. Some have mentioned the internationalization of the yuan, however it’s obvious that the yuan can’t become the world’s reserve money if China’s domestic market isn’t the largest in the world. The Chinese economy is dependent on exports, which means the currency will flow back when goods are exported. Japan and Germany both tried the internationalization of deutschmarks and yen. However, their share in the international currency never exceeded 7%, which is also because of their export-orientated economies.
This could serve as a lesson for China. A third of China’s GDP comes from its domestic market, which is only a ninth of the size of the American market. The best outcome for export-oriented countries can’t be better than was the case for the deutschmark or the yen.
What’s the strategic purpose of promoting the internationalization of the yuan? In my opinion, the answer is to replace the dollar. However, is it possible to guarantee an efficient supervision of yuan trading abroad now? The more yuan that flow abroad, the more dangerous it will be. The same applies when pricing the yuan. If the State Administration of Foreign Exchange and the People’s Bank of China set up the exchange rate at 6.36, while the deal in New York 5, which standard will the market follow? As there are many financial derivatives abroad, the number of the deals there may exceed those in Beijing. In this case, China may lose the pricing right.
This is precisely why I look into the past. Looking back, we can observe how the pound and dollar rose. When comparing the domestic market in the U.S. and Great Britain to the one in China, it’s impossible to argue that the yuan could replace U.S. dollar in the next 30 years. It would be better to promote an Asian currency and benefit from the indirect internationalization of yuan. However, there are also problems, such as how Asia should be integrated.
EO: Do you mean binding all of Asia?
Song: Yes. Actually Chinese people seldom think about why the Asian economy is still distracted and contained by the U.S. and Europe when their total economy is already the equal of the two powers. They also rarely consider why all Asian countries turn to the U.S. instead of each other when problems occur. If China wants to become a world power, it’s vital that China integrates with other Asian countries.
EO: Isn’t the integration of Asia difficult for geographical and political relationships and historical reasons?
Song: The root of the problems of Asian countries is not the misunderstandings and historical obstacles. Compared with those secondary problems, the major factor is external - the fact that the U.S. doesn’t want Asia to unite. There haven’t been as many wars in Asia as there have been in Europe, yet countries are still very alienated. If Asia is integrated as an interest community, the U.S. won’t have the chance to remain a super power.
This is why I wrote the reconciliation of Germany and France in the book. Germany and France were reunited by the European Coal and Steel Community. The two countries were at war with each other, as France took the Ruhr and Saar areas from Germany after World War Two and Germany found their development was limited by France after the war. The potential war in the 1950s between the two countries was later eliminated by the joint of their steel industries. The union is super-sovereign and open, welcoming other countries to join in as well. This is the origin of the European Communities and the European Union. If Asian countries have conflicts over the east and south sea, why don't we take the example and integrate the oil sources there with a super-sovereign union, which can bind the interests of China, Japan and Korea together. By then, none of these countries would start a war and a new united Asia market will also be created. When an Asian currency can finally be promoted, the influence of the U.S. and Europe over the region will decrease.
EO: Your thinking is typically American. Would you agree that Chinese people normally don’t think in the same way?
Song: Yes. After living in the U.S., I found that the thinking in the U.S. and U.K. is the key to their success in leading the world since it is focused on rational national interest. Rather than focusing on the “face” of the country, they pursue the most rational and useful ventures. Nationalism in China is too irrational. It doesn’t make a difference if we are complaining about others all the time. However, if we cooperate with Japan and unite the Asian countries to make an organization of mutual interest, China will benefit the most. As the saying goes, even beggars need to watch their back when they're beating dogs, how could China stand against Europe and the US without the Asian back-up? China should compete with Europe and the U.S. for the leading role in the world. The “great power diplomacy” (大国外交) that we emphasized too much in the past should be replaced by “neighbor diplomacy” (邻国外交). Even if we could maintain a good relationship with Europe and the US, how can we expect them to help us sincerely when everyone is competing with each other to be the leader of the world? That’s like trying to find a fish up a tree. We should turn to our Asian neighbors for help by changing our mentality about becoming world leader.
I don’t mean to say that we should live in history, but I want to show that we shouldn’t repeat history either - we shouldn’t be divided and governed by foreign powers. China should integrate the Asian powers into a mutual market and currency. Germany gave up their domestic market and deutschmarks, but gained the whole European market and control of the Euro. This is the dialectic relationship of “giving” and “gaining”. How can we gain something without giving?
Links and Sources
Song Hongbing\'s Weibo
