Outside pressures to appreciate the RMB did come,not two years later，but in about four months.I havestood firmagainst any significant appreciation of theRMB.The reason is that to improve the livelihood ofthe peasants，they must be encouraged to move to theindustrial sector.In no way could China’s economicreformbe regarded to be successful，unless the peasant’sstandard of living is lifted to a level on par with city workers.For centuries，the tale of Chinese peasants hasbeen blood，toil，tears，and sweat.For the first time inmemory the peasant is seeing a glimmer of light，but asubstantially appreciating RMB will extinguish that hope.
I told Milton in Stockholmin 1991，on the occasion of Coase’s Nobel Prize，that the world wouldsoon see anintroduction of one to two billion cheap workers intointernational trade，and the structure of the global econo-my would be very different in 20 years.That competi-tion has arrived，and my concern for China is that wagerates in the country，though low，are nowsubstantiallyhigherthan places like India and Vietnam.I amdelight-ed to see these countries，too，are developing strongly,for the simple reason that the richer they are，the moremoney China will make trading with them.
【46】张五常，《令人羡慕的困境——朱镕基退休有感》，二○○三年三月十一日发表于《革果日报》。
However,appreciating the RMB in effect amounts to offering ahandicap.Howcould Chinese peasants gain a higherstandard of living with a sharply rising RMB，when even today many of them have not seen a real plane flying？
There are numerous factories in China which I havecalled order-takers.They hold no patent rights and nobrand names，but only execute orders to produce to givensamples or designs.Whenever a purchaser wants a cer-tain product，he would send out requests for samples andpricing，sometimes to several countries.My view，sup-ported by hard fact，is that Chinese peasants tryingindustrial work generally begin in order-taking factories,and then move up the ladder with acquired skills andknowledge.I amgrateful to Bob Mundell who，too，hasspoken out loud on many occasions against significantappreciation of the RMB.
It would be easy to relieve the market pressure toappreciate the RMB.Instead of foolishly suppressingdemand for money——which the authorities are doing at the time of writing——they should drop exchange con-trols and let the RMB out to freely trade in the interna-tional market.Downward and upward pressures on acurrency are not symmetrical.A currency facing down-ward pressure is a headache，but one facing upward pres-sure is not badly off.Letting the RMB out as proposedabove makes money for the country，and since China isalready flooded with foreign reserves it would be easy to buy the RMB back if need be.Any concern about infla-tion can be removed by anchoring the RMB to a basket of commodities.
Inspired by Zhu’s monetary system，I suggested in2003 and repeated it several times，that the RMB should be anchored to a basket of commodities，or rather to theprice index of such a basket.No commodities need beheld in storage by the monetary authorities.The authori-ties simply guarantee the RMB holder that a givenamount would purchase the specified basket in specifiedmarkets.
This tradable index is easily adjustable，which means the domestic price level would be easily adjustable.The selection of commodities and the assignment of weightsrequire careful consideration，but if done properly infla-tion will no longer be a matter of concern.The idea ofanchoring a currency to a basket of commodities wasdiscussed with Milton years ago，and it is consistent with the views of Mundell.Zhu’s experience suggests the costs would be lowin practice，because a currency maysuccessfully anchor itself to a tradable commodity priceindex and no actual commodities need be held by themonetary authorities.
Beijing considered my proposed monetary systemcarefully，which in reality is the Zhu systemmodified.The modification involves taking one step sideway toavoid confrontation with other nations,by saying: “Herewe are back to the old commodity standard，except that we go by a tradable index and hold no commodities inreserve.This is how we value our currency，and againstall other currencies exchange rates are freely floating.”Of course，to guard against inflation it would be far bet-ter to anchor a currency to a tradable index of real thingsthan to paper currencies.
I amnot disturbed that the central bank has not accept-ed my suggestions，but what they have done over thepast two or three years are matters of genuine concern.Other than what have been mentioned，my impression is that they want to go to fiat money.In this case，mone-tary policy sooner or later would have to enter.This willsharply increase the power of the monetary authorities tointervene in economic activity，which would in duecourse increase the risk of undermining the xian system.
Let me repeat an important point made earlier.Therights structure of competing xians cannot be easilydemolished.Any unwarranted policy which infringes onthe xians’ interests and in which they have a say，I do notworry about.For example，I do not worry about domes-tic price controls or rent controls，and if they are intro-duced I put my money on that they would not been forced，or if enforced the controls would be liftedbefore long.But I do worry about are policies in which the xians have no say.In this regard，monetary mattersare at the top of my trouble list.
XI.Concluding Remarks
