The BoK has developed three monetary policy tools, to wit, the lending facility, the required reserve system, and open market operations, which have led to changes in its assets and liabilities. The BoK uses these tools to influence intermediate targets, such as the money stock and interest rates, and to achieve price stability as its final goal. It has also added to its existing toolbox a standby facility, which has gained in importance under the current interest-rate-setting monetary policy framework. This chapter looks at the main components of the assets and liabilities of the BoK, and examines its credit and monetary policy tools.

Inflation targeting was a very important operational tool in stabilising the inflation rate in many countries when the inflation rate was running high. Korea was no exception to the deployment of this tool. In the past, Korea suffered from relatively high inflation rates and the introduction of inflation targeting contributed to stabilising inflation through the anchoring of the inflation expectations of private agents. The BoK set the target at 3 per cent and focused its operations on reducing inflation to below the target and thus the inflation targeting operations carried out by the BoK were asymmetric. This chapter conducts an assessment of the inflation targeting that Korea has experienced in the aftermath of the 1997 currency crisis.

When the Communist Party of China announced a new government on October 1, 1949, the economy that government inherited was in shambles. China had been at war for over twelve years and much of the infrastructure of the country had been destroyed or badly damaged and prices were rising at 51 percent per month or 13,000 percent per year. The Guomindang government fleeing to Taiwan took much of the country’s foreign-exchange and gold reserves with them, along with many of the managers of the banks and industrial firms. Inflation and war left many of the businesses that stayed barely able to function even when their managers and technicians did not flee.

The integrity and durability of the Chinese empire over two millennia rested on the strength of its fiscal capacity. From antiquity, sovereignty was linked to the ruler’s duty to provide for the economic as well as moral welfare of his subjects. Rulers of the Bronze Age manifested and reproduced their authority through distribution of wealth among their kinsmen and noble allies. The autocratic monarchs who rose to dominance after 500 bce amassed wealth to buttress their military prowess, but they also strove to protect the independence and livelihood of the smallholder family farmers who undergirded their economic prosperity. The institutional apparatus of the fiscal state – centralized planning of taxation and expenditure to satisfy the state’s commitments to good governance – became a defining feature of the first empires, beginning with the Qin dynasty (221–206 bce). Yet at the same time the rise of a market economy also shaped the relationship between the state and its subjects. Even the command economy instituted by the Qin Empire made accommodations to markets, merchants, and money.

In the nineteenth century, the Chinese Empire – the longest-lasting empire in human history – was the largest economy on earth with a decent per capita GDP level. But it shrank rapidly after its collapse. Since the founding of the PRC in 1949, China had been one of the poorest economies in the world until the post-Mao reform, which has enjoyed high growth for three decades. But a sustained slowing down since 2009 reminds us of the trend of the Soviet economy since the mid-1970s.

At the turn of the nineteenth century, the Qing dynasty entered a phase of social and economic decline. By 1850, mounting crises had exploded in a devastating series of rebellions (best known for the Taiping Rebellion, 1850–1864). Until 1880, up to a quarter of the population had perished, although the numbers are debated. The civil wars revealed the bankruptcy of the dogma of fixed tax quotas that had governed China’s fiscal thought since the Ming dynasty (see the chapter by von Glahn and Lamouroux in Volume 1). New commercial taxes, most prominently foreign customs and lijin 釐金 (literally “one-thousandth”) trade tariffs, soon exceeded agricultural taxes and increased state revenue. Fiscal recovery was short-lived, however, as the double defeat in the First Sino-Japanese War (1894–1895) and the Boxer Rebellion (1900–1901) once again threw Qing finances into turmoil. Servicing the war loans and indemnities while simultaneously promoting costly “New Policy” (xinzheng 新政) reforms (1901–1911), the imperial government gradually lost control of the provinces and was unable to check the nationalist awakening of its citizenry. This led to the 1911 Revolution and, eventually, national disintegration during the warlord era.

An understanding of how the money market developed is vital because money serves as the blood of an economy. From 1800 to 1937, the Chinese money market transitioned from a highly fragmented bimetallic system to a gradually integrated silver yuan system in tandem with a silver-backed fiduciary paper-money system until a fiat money system was established. As a consequence, the economy became increasingly monetized as the growth rate of the money supply gradually surpassed the overall economic growth rate without evident inflation pressure on general price trends. This development resulted both from the efforts of governments and private institutions in response to various types of shock separately and from the outcomes of competition and co-operation between the two stakeholders over time.

December 1978 was a political, economic and social turning point for China. As the balance of power within the top leadership shifted, a search for new policies began that deepened into what came to be called “reform and opening” and culminated decades later in a multistranded transition to a market-based economy. This new policy orientation was accompanied by a shift in development strategy that permitted China to take advantage of its factor endowments and structural conditions and dramatically accelerate economic growth. Thus 1978 marks not only the beginning of “reform,” but also the start of the Chinese “economic miracle,” a remarkable thirty-two-year period, through 2010, during which GDP grew at an annual rate of 10 percent. Chinese economic structure and Chinese society were utterly transformed. An extraordinary distance separates the vibrant upper-middle-income, predominantly market-based, economy that is China today from the troubled, isolated low-income country that was China at the end of the Cultural Revolution. This chapter builds its narrative around the systemic and structural changes that transformed China, especially in the thirty years between 1978 and 2008.

China’s rise as the world’s second-largest economy surely is the most dramatic development in the global economy since the year 2000. But China’s prominence in the global economy is hardly new. Since 500 BCE, a burgeoning market economy and the establishment of an enduring imperial state fostered precocious economic growth. Moreover, contrary to the view that China’s economy withered under the dual constraints of Western colonialism and Chinese tradition after 1800, recent scholarship has identified the onset of modern economic growth in response to new incentive structures, investment opportunities, ideas, and technology, laying the foundation for the post-1978 economic miracle. China’s combination of market-led growth under the firm hand of the state has produced a model of economic development that challenges conventional theories of capitalism and economic growth. The spectacular growth of the contemporary Chinese economy also spurred deeper investigation into the Chinese economy – long a neglected field of study, at least in the Western academy. Scholarship on Chinese economic history has now developed to the stage where a Cambridge History devoted to the subject is appropriate and feasible.

As Korean growth slows down and interest rates fall close to zero per cent, the limits of the existing interest rate-based monetary policy become apparent and unconventional policy tools and instruments need to be newly developed. Against this backdrop, this chapter looks at the future challenges which will confront the BoK, and examines how the implementation of monetary policy can be improved by incorporating tools such as quantitative easing, forward guidance, and credit easing, in order to cope with the projected low growth and low inflation.

Chapter Five discusses two things. First, it looks at the aftermath of the Futian Rebellion and at Xiang Ying’s efforts to calm things down. Xiang’s efforts were soon reversed by the arrival of the “three person group,” which implemented the radical new line coming out of the Comintern. Zhou Enlai would later try to control the sufan movement, but new leadership (Bo Gu) and the pressing need for soldiers and money would reignite efforts to suppress so-called counterrevolutionaries. Second, the chapter looks briefly at the Eyuwan Revolutionary Base Area, north of the Yangzi river, to show that the same logic of sufan applied there as well.

Since the late nineteenth century, some scholars have emphasized the free character of the traditional Chinese economy, while others have regarded it as a feudal or Asiatic one that prevented the development of a market economy. The question of property rights and factor markets, which are the themes of this chapter, is closely related to this subject. The first section of this chapter will give a brief survey of the institutions governing the markets for land, labor, and capital from the perspective of law and policy. In the second section, several concrete illustrations will be presented to describe the functioning of factor markets in the Song–Qing economy. In the last section, an outline of the short-, middle-, and long-term changes that occurred in factor markets will be described.

Up to this point the book has followed the development of the Donggu Revolutionary Base Area on the one hand and Mao’s efforts to build a party-army on the other. In Chapter Four these two strands of the story come together violently. Mao is determined to purge the southwest Jiangxi party organizations of all landlords and rich peasants. Soon an “AB (anti-Bolshevik) Corps” is “discovered,” even though it is nonexistent. Hundreds of people (Communist Party members) are tortured and killed. The culmination of this campaign is the Futian Rebellion.

The Conclusion reviews the arguments made in the previous chapters and argues the importance of the Donggu Revolutionary Base Area for understanding the Chinese revolution. It is impossible to ignore the conflicts between the local interests of the Donggu revolutionaries and Mao’s efforts to create a national revolution. It is also impossible to ignore the conflict between the Communist movement’s need for soldiers and money and the unwillingness of local society to provide either in sufficient quantity.

The Chinese economy demonstrated significant vigor from the eleventh century to the nineteenth. This period of nine centuries achieved remarkable progress in implementing the imperial examination system, improving literacy, establishing private landownership, developing market institutions, adopting new crops and improved farming technology, strengthening the lineage order, and lifting ordinary people’s capacity to deal with risks. According to the optimistic view, this is also the period during which two economic revolutions, the Tang–Song and Ming–Qing transitions, took place, marked by continuous economic growth and improvement in living standards for the population.1 To other scholars, however, this long period of quantitative growth was largely achieved through population increase, preventing China from escaping the “Malthusian trap.” That is, while the total size of the Chinese economy may have grown due to the rising population, per capita living standards failed to rise above historical norms and might have even declined during the long period. This period’s achievement and impact were nothing comparable to that of the Industrial Revolution which started in eighteenth-century Britain.