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Monetary Theory from a Chinese Historical Perspective

Zheng Xueyi
Yaguang Zhang
John Whalley

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.