Rise of the RMB

China’s new money man

Zhu Min’s IMF posting may herald a new world order

Zhu Min offers his view on the US dollar

No one can exactly say when America’s financial hegemony began in the twentieth century, but for historians a symbolic, and convenient, date is August 16, 1924 when the Dawes Plan was signed.

Named after Charles Dawes, the US vice-president, the plan was America’s attempt to fix the international financial system in the wake of World War I. By loaning money to Germany to pay for war reparations, it also marked the beginning of the dollar’s long road to becoming the globe’s reserve currency.

Nearly 86 years later, the issue of what should be the world’s reserve currency is up for debate yet again. Financial hegemony, meanwhile, looks (slowly) to be passing to China. So will future historians remember February 24, 2010 as a symbolic day too?

That’s the date when Zhu Min was appointed special adviser to the IMF’s managing director, Dominique Strauss-Kahn – a move that impelled insiders and media alike to acknowledge China’s growing role in global finance.

Zhu’s appointment had been in the works for some time. Last October, when he left the state-owned Bank of China and assumed the position of vice-governor of the People’s Bank of China, local media had widely expected that assignment to lead to a post with the IMF. Some papers even speculated that he would be named a deputy managing director.

At the G20 Summit last April, leaders of member nations agreed to give a bigger voice to developing countries, including China, at the IMF. But as with all such negotiations, this came at a price: in China’s case, a commitment to inject $40 billion into the IMF.

In return, China Newsweek noted there was a ‘collective silence’ on the part of Strauss-Kahn and other developed-nation leaders at the London summit on China’s renminbi exchange rate policy. Furthermore, in June, China announced that it would buy $50 billion worth of IMF bonds. With that, China’s voting rights in the IMF increased only slightly from 3.66% to 3.72%. Nevertheless, under a quota review to be completed in 2011, China is expected to become one of the top five IMF shareholders.

That’s where Zhu comes in…

He was born in 1952 in Shanghai. Growing up during the Cultural Revolution, he had to forgo his studies for a few years to work as a truck driver at a sugar factory. He finished his bachelor’s degree in economics at Fudan University in 1982, and became a faculty member. During the same period, he was also an adviser to the Shanghai City government and had worked closely with Wang Daohan, a former Shanghai mayor and China’s top cross-straits negotiator at the time. He continued his studies later in the US, where he received a Masters in Public Administration from Princeton University and a doctorate in economics from Johns Hopkins University.

From 1990 to 1996, Zhu was an economist at the World Bank. In 1995, he expressed an interest in returning to China and asked visiting friends Lou Jiwei (who later served as deputy minister of finance, and is now the incumbent chairman of China Investment Corporation) and Cao Yuanzheng (then the deputy director of the Division of International Affairs of the State Commission for Restructuring) to help him look for opportunities back home. Soon enough, he was offered a job at Bank of China.

At Bank of China, Zhu was given the task of restructuring the bank ahead of its listing in Hong Kong. He worked very closely with his friend Cao, who by then had also joined the bank.

It was during this process that Zhu became very familiar with financial and banking regulations and how they varied across jurisdictions. “Can you imagine, having to go through literally 20 tonnes of documents, that is, every word and every punctuation mark, to make sure nothing is wrong?” Cao recalled, evidently without relish.

In 2003, Zhu became BOC’s executive assistant president, and three years later was promoted to group executive vice president where he oversaw finance, internal control, legal issues, strategic and research matters. Over the years, his international profile grew. He has been a guest lecturer at several university graduate schools, and a frequent speaker at major global economic forums.

Even before his recent appointment, the UK’s Daily Telegraph had described Zhu as “a man worth listening to,” thanks to his warning – which went unnoticed at the time – about the risk of asset bubbles, a full year before the global credit crisis erupted. “There is money everywhere,” he told Davos in 2007. “You can get liquidity from the market every second, for anything you want… so people are investing in assets with no idea of the risks they’re taking.”

At this year’s World Economic Forum, Zhu made headlines by raising concerns over the carry trade that now centres on the US dollar.

“It is a massive issue. Estimates are that the dollar carry trade is $1,500 billion, which is much bigger than Japan’s carry trade,” he said.

China has reasons to be hopeful that Zhu’s influence, and in turn its own, will grow in the years to come. Zhu is the second Chinese national in recent years to join a global institution, following Justin Lin Yifu’s appointment as chief economist to the World Bank in 2008. The National Business Daily quoted an unnamed source close to the IMF predicting that Zhu’s ‘special adviser’ posting is a temporary position, and that he would eventually rise to the position of deputy managing director of the IMF.

But the pace of any change in the balance of power at the Washington-based institution is likely to be a glacial rather than tectonic as well as subject to protracted negotiations. The IMF already has a deputy managing director from Asia, Takatoshi Kato of Japan, and developing countries have a representative in Murilo Portugal from Brazil.

A former executive director at the IMF believes Zhu’s appointment does not necessarily mean China’s voice in the IMF will increase. Zhu will be “employed by the IMF” but won’t necessarily represent the voice of any particular nation, Zhang Zhixiang told National Business Daily.

But as US and European politicians continue to try to convince Beijing to allow its currency to appreciate, Zhu is unlikely to remain silent. In December he said the sharp fall in China’s exports last year had given Beijing good reason to depreciate its currency but China had instead kept the renminbi stable against the US dollar and this, he said, had helped steady the global economy.

Having been a deputy governor of the central bank, Zhu is unsurprisingly vocal about China’s worries over its exposure to US government debt.

“The world does not have so much money available to buy more US Treasuries,” Reuters quoted him saying at a forum in December. Nor were these mere words: in the same month China trimmed its Treasury holdings by $34.2 billion.

One area that Zhu and Strauss-Kahn may agree on is the need to find a new reserve currency that could substitute for the dollar.

A year ago the PBOC governor Zhou Xiaochuan started advocating the idea of using Special Drawing Rights, the synthetic currency developed by the IMF, as a super-sovereign reserve currency. Only time will tell whether the dollar’s hegemony will be deposed, much as the British pound’s was a century earlier.

But it’s clear that China stands to play a pivotal role in the eventual outcome either way.


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