Monday, April 11, 2011

China’s Inflation Problem

Catastrophic inflation in China undermined President Chiang Kai-shek’s Nationalist government, abetting the Chinese Communist Party’s ascension to power in 1949.  Since then, China’s leaders have remained wary of inflation.

To minimize the appearance of inflation, the largest denomination banknote issued by the People’s Bank of China (China’s central bank) is Renminbi (RMB) 100.  At current exchange rates (US$1=RMB 7.53), RMB 100 is worth US$15.32.

Wages and prices in China are rising rapidly.  It is becoming increasingly inconvenient to carry thick stacks of RMB 100 banknotes for purchases of goods and services.  Accordingly, it is time for China to recognize the reality of its fast-growing middle class and issue larger denomination notes.

In that regard, it is time to give the late Deng Xiaoping, the man who opened up China’s economy and set it on a path of sustained high growth, an extra honor.  I have done this below in the design of a possible RMB 500 banknote, which places Deng’s portrait on the obverse side.

(HT:  Ellen Santiago)

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