The Fate of the Dollar as Reserve Currency

Are many of the recent problems in the world – from income and wealth inequality to China-U.S. hostility – the result of the structural overvaluation of the dollar and its reserve-currency status? Writing in a new, highly readable, engaging and informative book, Financial Cold War, its author, James A. Fok, makes a thought-provoking case that they are.

A financial and economic history of China and the U.S.

The bulk of Fok’s book comprises a narrative of the United States’ and China’s recent economic and financial history. For anyone who wants a concise and easy to read account of both or either one, I recommend reading Financial Cold War.

The most valuable for me was the part about China, since I was already familiar with the content about the U.S. I had some knowledge about China, but Fok’s book vastly enriched it and filled in a number of blanks.

For example, Shenzhen is a city in China just over the border from Hong Kong. Its center is a 15-minute ride by high-speed rail from downtown Hong Kong. Its population is more than 12 million and is often referred to as “China’s Silicon Valley.” It’s surrounded by other cities, such as Dongguan, that also grew to large sizes in the last 40 years.

Shenzhen’s growth is miraculous. Now a spectacular modern city, it was a tiny fishing village with a population of 3,000 in 1950 and still only 48,000 in 1978.

To supplement and add texture to the general knowledge about Shenzhen’s growth, Fok supplies a tangible origin story:

As Deng Xiaoping was making his case for reforms to the Party leadership in 1978, a 34-year-old entrepreneur named Cheng Ho-ming crossed from Hong Kong's New Territories over to Shenzhen, a small Guangdong fishing village just bordering the British colony. Cheng had been running his own handbag factory in Hong Kong for a decade and had come to negotiate a deal with a state-run wig factory. He found himself in a rural backwater. Local officials didn't have a car, so had arranged for him to travel to their office by bus.

The small factory in the Luohu district was reached by a single concrete road. To convert it into a production line suitable for making handbags for export around the world, Cheng would not only have to import manufacturing machinery, but also install power generators, as there was no steady supply of electricity at that time.

… When Cheng tried to raise productivity by introducing a new system to pay each worker based on how many pieces he or she produced, his government-appointed factory manager worried that this ‘capitalist idea’ may contravene the law. Undeterred, Cheng eventually convinced him by promising to go to jail with him if the authorities took action against the factory. Once the workers saw their wages could rise substantially if they worked harder, their attitudes changed. Suddenly, they were rushing to resume work straight after lunch and productivity rose rapidly.