Chapter 7 introduces students to the monetary and financial dimensions of East Asian international relations, which are fragmented regionally while tied closely with the Western-dominated monetary order. Monetary power is arguably as important as military power, but it is not well understood and not commonly included in an IR textbook. As a social construction, monetary and financial power are related to but not equivalent to productive power. East Asia does not stand in isolation, because its contemporary monetary and financial practices and theories are integrated into the global system. Thus, this chapter examines U.S. dollar hegemony. Following a broader discussion of the exchange-rate regimes adopted by East Asian nations, the chapter discusses the 1997–1998 Asian Financial Crisis, a monumental event in post-war East Asian international relations triggered by a currency crisis. The chapter ends with a discussion of the 2008 Great Recession.

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.