- By Daniel W. Drezner
Daniel W. Drezner is professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University and a senior editor at The National Interest. Prior to Fletcher, he taught at the University of Chicago and the University of Colorado at Boulder. Drezner has received fellowships from the German Marshall Fund of the United States, the Council on Foreign Relations, and Harvard University. He has previously held positions with Civic Education Project, the RAND Corporation, and the Treasury Department.
While your humble blogger
remains jet-lagged out of his gourd adjusts back to the Western hemisphere, he strongly encourages you to read this fantastic David Barboza story in the New York Times on the predilection in China to use cash for … well … everything:
Lugging nearly $130,000 in cash into a dealership might sound bizarre, but it’s not exactly uncommon in China, where hotel bills, jewelry purchases and even the lecture fees for visiting scholars are routinely settled with thick wads of renminbi, China’s currency.
This is a country, after all, where home buyers make down payments with trunks filled with cash. And big-city law firms have been known to hire armored cars to deliver the cash needed to pay monthly salaries.
For all China’s modern trappings — the new superhighways, high-speed rail networks and soaring skyscrapers — analysts say this country still prefers to pay for things the old-fashioned way, with ledgers, bill-counting machines and cold, hard cash.
Many experts say it is not a refusal to enter the 21st century as much as wariness, of the government toward its citizens and vice versa (emphasis added).
Now you should definitely read the whole thing, but a few thoughts here:
1) From a personal perspective, as the occasional visitor to China, I can confirm the wads of cash thing — but it’s a bit more complicated than Barboza suggests. First of all, for U.S. academics at least, the payment isn’t in renminbi, but in U.S. dollars. Renminbi is sometimes dispensed for things like per diem reimbursements, but not for honoraria. After all, officially, the RMB is still not convertible to dollars outside of the country, so it wouldn’t be very nice to get paid in a currency that is technically useless outside the People’s Republic.
There are two other qualifiers here. First, at least with respect to academic honoraria, it’s not just China that pays in cash — so does Japan, for example. Second, speaking as an academic who’s received the occasional honorarium, it’s friggin’ awesome. At some point, someone takes you aside and gives you an envelope stuffed with bills. I know it’s impolite to say, but every time it happens, I feel like I’m an earner in Tony Soprano’s crew. It’s soooooo much more satisfying than getting a check (as is the norm in the U.S.) or receiving a bank transfer
three months later than it should be and only after haranguing someone a few times (as is the norm in Europe).
2) The more substantive point of Barboza’s story is how the cash-based system reflects the degree of distrust between the government, Chinese citizens, and the financial system. From a global political economy perspective, this cuts in two directions. On the one hand, it suggests that the effects of a real estate bubble popping in China might have a muted effect on the broad mass of Chinese. After all, if they’re holding their assets outside the financial system, then their bigger fear will be currency-gnawing rats (read to the end of Barboza’s story) than banks closing.
On the other hand, it’s worth reading articles like this whenever someone suggests that the renminbi will soon be a challenger to the U.S. dollar as an international reserve currency. For that to ever truly happen, China’s capital account will have to be one hell of a lot more transparent and liberal than it is now. As it turns out, even China’s Superbank isn’t actually that super once one digs into the numbers. And if Chinese citizens are trying to avoid dealing with China’s financial system and the renminbi, then I seriously doubt global capital markets are going to embrace the RMB as a rival to the dollar.