Monetary Theory from a Chinese Historical Perspective

Zheng Xueyi, Yaguang Zhang, John Whalley

NBER Working Paper No. 16092
Issued in June 2010
NBER Program(s):   ME

We discuss monetary thought in ancient China from the perspective of Western monetary theory. It sets out the structure of economic activity in the various dynasties of ancient China and emphasizes the differences in monetary structure from Europe (and later North America). Imperial China was a politically integrated structure with regional segmentation of economic activities and hence with regional money. Monetary policy was one body conducted at regional level, but overseen naturally politically before national integration under the Ming dynasty (14th century). In various regions different forms of money circulated, with gold, silver, copper, and paper all present at various times. Monetary policy was guided by monetary thought, such as later in Europe. Basic concepts such as monetary function, the velocity of circulation, inflation, interest rate parity and the quantity theory were all present. The economics of Imperial China witnessed boom and bust, inflation and deflation and monetary control much like Europe to follow. Monetary thought thus seemingly preceded Western thought, and had remarkable similarities. Whether much of this thought travelled down the silk road remains unknown, but the possibility is intriguing.

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Acknowledgments

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