This journal article highlights numerous issues in China, namely the effect of foreign exchange reserves (the amount of foreign currencies held in China) on domestic inflation. The authors argue that higher foreign reserves lead to higher domestic inflation, and this inflation has a variety of internal socio-economic effects on different demographics. The article attempts to conclude that the Chinese government’s approach to maintaining domestic stability is based off short-term benefit: to avoid sudden and disruptive change/events, the government chose a gradual currency appreciation policy instead of a one-time big appreciation policy. The authors perform a cost-benefit analysis that explains how steady inflation (a consequence of gradual currency appreciation) is more favorable to the public than sudden rises in unemployment (a consequence of a one-time big appreciation policy). This choice according to the authors underlines the often-overlooked political factors that are relevant when analyzing economies. The authors presented much economic and organizational data in a quantitative fashion that they collected from public records, such as data from the People’s Bank of China and the National Bureau of Statistics of China. The authors use examples of past Chinese monetary policy to support their claim (interest rates, reserve requirements and open market operations) as well as their own statistical regressions. Their statistical methods were respectable in that they acknowledged the difference between inference and fact—they in no way claimed their statistics were true and admitted that their models only worked in certain conditions (even though the numbers support their claims). What I most appreciated about this article was the emphasis on scrutiny that welcomes discussion and debate. The authors also underlined hidden social behaviors that influence domestic affairs, specifically the “catching up with the Joneses” effect, which I think would be interesting to other students of sociology.

Cheng, Tun-Jen, and Xuan Liu. “Foreign exchange reserves: a new challenge to China.” Journal of Post Keynesian Economics 35, no. 4 (Summer, 2013): 621-50. doi:10.2753/pke0160-3477350406.