Jeffrey Yi-Lin Forrest • Yirong Ying • Zaiwu Gong
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Price
|
3.00 |
|---|---|
Pages
| 610 p |
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9,036KB |
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PDF format |
ISBN
| 978-3-319-67764-4 978-3-319-67765-1 (eBook) |
Copyright©
| Springer International Publishing AG 2018 |
About the Authors
Dr. Jeffrey Yi-Lin Forrest holds all his educational
degrees in pure mathematics and had a 1-year postdoctoral
experience in statistics at Carnegie Mellon University.
He had been a guest professor of economics,
finance, and systems science at several major universities
in China, including Nanjing University of Aeronautics
and Astronautics. And currently, he is a professor of
mathematics at Slippery Rock University, Pennsylvania,
and the president of the International Institute for General
Systems Studies, Inc., Pennsylvania. He serves either currently or in the past on
the editorial boards of eleven professional journals, including Kybernetes: The
International Journal of Systems, Cybernetics and Management Science, Journal
of Systems Science and Complexity, International Journal of General Systems, etc.
Some of Dr. Lin’s research was funded by the United Nations, State of Pennsylvania,
National Science Foundation of China, and German National Research Center
for Information Architecture and Software Technology. As of the end of 2015, he
has published well over 300 research papers and 45 monographs and special topic
volumes. Some of these monographs and volumes were published by such prestigious
publishers as Springer, World Scientific, Kluwer Academic, Academic Press,
etc. Over the years, Dr. Yi-Lin’s scientific achievements have been recognized by
various professional organizations and academic publishers. In 2001, he was
inducted into the honorary fellowship of the World Organization of Systems and
Cybernetics. His research interests are wide ranging, covering areas like economics,
finance, management, marketing, data analysis, predictions, mathematics, systems
research and applications, philosophy of science, etc.
Dr. Yirong Ying is professor of finance and is associate
chair of the Department of Finance, College of Economics,
Shanghai University. He earned his B.S. degree in
mathematics in 1982 from the Mathematics Department
of Northwest University (China) and his Ph.D. degree in
mathematics in 2000 from the Mathematics Department
of Xidian University. In 2002, Dr. Ying did a 1-year
postdoctoral study in finance at the Institute of
Contemporary Finance, Shanghai Jiao Tong University.
Professor Ying has taught many different courses in the areas of economics and
finance, such as econometrics, financial economics, financial physics, applied
statistics, financial engineering, economic cybernetics, low-carbon economy, and
others. His research interests include financial engineering, financial mathematics,
security pricing, and risk management. He has published four monographs:
• The Significance, Methodology and Application About Infinite
(Xi’an: Press of Northwest University, 1996)
• Capital Account Liberation in the Post Financial Crisis Era
(Shanghai: Press of Shanghai University, 2012)
• Econometrics (Shanghai: Press of Shanghai University, 2012)
• Applied Statistic (Shanghai: Press of Shanghai University, 2013)
Additionally, Dr. Ying has published more than 50 research papers in various
professional journals, such as Kybernetes: The International Journal of Systems,
Cybernetics and Management Science, Advances in Systems Science and Applications,
Annals of Differential Equations, Journal of Management Science, Journal
of Systems Management, Journal of Chang’an University, Chinese Journal of
Engineering Mathematics, International Journal of Research in Business and Technology,
and International Journal of Engineering Mathematics and Computer Sciences.
Currently, Professor Ying is director of the Shanghai Financial Engineering
Association, System Science, Management Science and System Dynamics Association,
and Chinese Enterprise Operations Research Association.
He has won numerous awards for excellent research. His works have been
financially funded by the National Natural Science Foundation (China), the Ministry
of Education (China), and various agencies of Shanghai.
Dr. Zaiwu Gong is professor and specialized in group
decision-making, grey systems, and risk analysis.
Among his main research achievements, Dr. Gong developed
a group consensus decision-making theory based on
optimization and a multisystem consensus decisionmaking
theory with decision-makers’ (DMs’) intuitive
preferences. He proposed a group consensus measure
theory with utility constraint by considering DMs’
behavioral characteristics and analyzed disaster risk
evaluation theory’s impact on rapid consensus decisionmaking
by considering the emergency characteristics of
disaster risk. Along these lines, he has published over
70 research papers on such well-known international journals as the European
Journal of Operational Research and Omega. His applied works are mainly
published in a special issue of Natural Hazards and have been incorporated into
the Academic Committee Development Plan for the Chinese Meteorological Society
of Meteorological Disasters and Services. Professor Gong has also published
four monographs by Science Press and Springer Press
and one textbook published by Meteorological Press.
Dr. Gong has been involved in more than 20 projects funded at the Chinese
national and provincial levels and has directed three projects for the National
Natural Science Foundation of China. He led one project for the Humanities and
Social Science Foundation of the Chinese National Ministry of Education and four
provincial projects that funded special talents (e.g., the Qinglan Project for the
Department of Education, Jiangsu Province; the 333 High-Level Talent Training
Project, Jiangsu Province; and the Six Talent Peak Project, Jiangsu Province).
Dr. Gong has been awarded 10 prizes, including the Excellent Paper Award for
the 4th IEEE International Conference on Grey Systems and Intelligent Services,
the Outstanding Paper Award from an international publishing company, and the
third prize for Excellent Achievement in Philosophy and Social Science in Jiangsu
Province. Dr. Gong has supervised 30 graduates (including five international
graduates majoring in business administration). Among his students, two were
awarded the Excellent Master’s Thesis of Nanjing University of Information
Science and Technology, three have won a national scholarship, and two have
won the third prize in the National Graduate Mathematical Modeling Contest.
Dr. Gong serves as a reviewer for more than 20 academic journals, including the
European Journal of Operational Research, Omega, and Information Sciences. He
is currently guest editor for Natural Hazards and editor for the Journal of Grey
System, and he is involved as a director or member in six associations in the
decision sciences branch of the Chinese Operations Research Society.
Table of Contents
1 Unconscious, Helpless, and Orchestrated Financial Crises . . . . . . . 1
1.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 A Systemic Association . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.3 Currency Wars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.4 Self-Defense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.4.1 The Problem of Economic Security . . . . . . . . . . . . . . . 8
1.4.2 Evaluate the State of Economic Performance . . . . . . . . 9
1.4.3 Introduce Policy Responses . . . . . . . . . . . . . . . . . . . . 10
1.5 How This Special Volume Is Organized . . . . . . . . . . . . . . . . . . 12
2 Systems Research and the Systemic Yoyo Model . . . . . . . . . . . . . . 15
2.1 Systems Science and the Second Dimension of Knowledge . . . . 16
2.1.1 Systems Science and Its Importance . . . . . . . . . . . . . . 16
2.1.2 A Two-Dimensional Spectrum of Knowledge . . . . . . . 16
2.1.3 The Systemic Yoyo Model . . . . . . . . . . . . . . . . . . . . . 17
2.2 Properties of Systemic Yoyos . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.2.1 The Field Structure . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.2.2 The Quark Structure of Systemic Yoyos . . . . . . . . . . . 23
2.3 Laws on State of Motion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.3.1 The First Law on State of Motion . . . . . . . . . . . . . . . . 27
2.3.2 The Second Law on State of Motion . . . . . . . . . . . . . . 28
2.3.3 The 3rd and 4th Laws on State of Motion . . . . . . . . . . 30
2.3.4 Validity of Figurative Analysis . . . . . . . . . . . . . . . . . . 32
2.4 Theoretical Justifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
2.4.1 Blown-Ups: Moments of Transition in Evolutions . . . . 35
2.4.2 Mathematical Properties of Blown-Ups . . . . . . . . . . . . 36
2.4.3 The Problem of Quantitative Infinity . . . . . . . . . . . . . . 36
2.4.4 Equal Quantitative Effects . . . . . . . . . . . . . . . . . . . . . 38
2.5 Empirical Justifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
2.5.1 Bjerknes’ Circulation Theorem . . . . . . . . . . . . . . . . . . 41
2.5.2 Conservation of Informational Infrastructure . . . . . . . . 42
2.5.3 Silent Human Communications . . . . . . . . . . . . . . . . . . 46
Part I Systemic Modeling of Economic Entities and Processes
3 Systemic Representation of Economic Organizations . . . . . . . . . . . 51
3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
3.2 The Relevant Systemic Intuition . . . . . . . . . . . . . . . . . . . . . . . 53
3.3 Investments in Innovative Competitiveness . . . . . . . . . . . . . . . 58
3.4 The Development Problem of an Economy . . . . . . . . . . . . . . . 62
3.5 Consistency Between Fiscal/Monetary Policies and the
Performance of the Economy . . . . . . . . . . . . . . . . . . . . . . . . . 64
3.6 The Storage System of Manufactured Products . . . . . . . . . . . . . 69
3.7 Changes in the State of an Economic System . . . . . . . . . . . . . . 70
3.8 Some Concluding Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
4 Order Reduction of Dynamic Monetary Systems . . . . . . . . . . . . . . 73
4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
4.2 The Control-Theory Model for Money Movement . . . . . . . . . . 76
4.3 Needs for Reducing the Dimensionality
of the Capital Movement Model . . . . . . . . . . . . . . . . . . . . . . . 80
4.4 Existence of Reduced Order Systems
for Currency Movement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
4.5 Method for Order Reduction of Currency
Movement Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
4.6 Error Analysis for Reduced Order Currency
Movement Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
4.7 Relationship Between the Transfer Functions
of the Original and Reduced Order Models . . . . . . . . . . . . . . . 91
4.8 Observability and Controllability of Reduced
Order Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
4.9 Selecting the Order Reduction Vector q . . . . . . . . . . . . . . . . . . 98
4.10 An Example of Application . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
4.11 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
5 Estimating the State of Economy Through Observers . . . . . . . . . . 109
5.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
5.2 Design of Observers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
5.3 The Problem and a Fundamental Theorem . . . . . . . . . . . . . . . . 116
5.4 Method of Observer Design . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
5.5 Observers of Lower Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
5.6 Location Determination of Observer’s Poles . . . . . . . . . . . . . . . 127
5.7 Some Concluding Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
6 Estimating the State of Economy Through Controllers . . . . . . . . . . 129
6.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130
6.2 State Feedback Controllers with Observers Attached . . . . . . . . 130
6.2.1 Separation of State Feedback Controller’s Poles. . . . . 130
6.2.2 Transfer Function Matrix of State Feedback
Controller with an Observer Attached . . . . . . . . . . . . . 132
6.2.3 Joint Design of a Feedback Controller
and Observer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
6.3 Design of Dynamic Compensators . . . . . . . . . . . . . . . . . . . . . . 134
6.4 Design of Multiple Variable PD Controllers . . . . . . . . . . . . . . . 139
6.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146
Part II Instability: The Brewing of Currency Wars
7 Some Major Financial Crises in History: 1929–2008 . . . . . . . . . . . 151
7.1 The Credit Crunch of 1966 . . . . . . . . . . . . . . . . . . . . . . . . . . . 152
7.2 The Year 1970: Penn Central . . . . . . . . . . . . . . . . . . . . . . . . . 154
7.3 The Year 1974: Franklin National . . . . . . . . . . . . . . . . . . . . . . 157
7.4 The Silver Crisis of 1980 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160
7.5 The 1982 Crisis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163
7.5.1 Thrift Institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164
7.5.2 Drysdale Government Securities, Inc. . . . . . . . . . . . . . 165
7.5.3 Penn Square Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . 166
7.5.4 Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167
7.6 The 1980s: Emerging Markets Debt Default Crises . . . . . . . . . . 168
7.7 Early 1990s: Advanced Countries Crises . . . . . . . . . . . . . . . . . 170
7.8 The Mid-1990s: Mexican Crisis and Asian
Financial Crisis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173
7.9 Late 2000s: The Great Recession of 2008 . . . . . . . . . . . . . . . . 176
7.10 Some Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179
8 Effects of Foreign Capital on Economic Security . . . . . . . . . . . . . . 181
8.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182
8.2 Positive Effects of Foreign Capital on Economic Security . . . . . 184
8.3 Negative Effects of Foreign Capital on Economic Security . . . . 189
8.4 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195
9 Economic Security Under Disturbances of Foreign Capital . . . . . . 197
9.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198
9.2 A Model for Monitoring Dynamic Foreign Capital
Within an Economic System . . . . . . . . . . . . . . . . . . . . . . . . . . 198
9.3 Estimate the State of Motion of Foreign Capital . . . . . . . . . . . . 205
9.4 Estimate the Initial State of Foreign Capital’s Movement . . . . . 208
9.5 How Disturbances of Foreign Capital Affect Economic
Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210
9.6 Concluding Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215
Part III Observability: Initiating Currency Wars
10 Inevitability of Currency Wars . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219
10.1 Interactions of Currency in the Globalizing Economy . . . . . . . . 220
10.2 Controllability and Observability of Economic Systems . . . . . . 221
10.2.1 The Controllability of an Economic System . . . . . . . . . 222
10.2.2 The Observability of an Economic System . . . . . . . . . 225
10.2.3 Duality Between Controllability
and Observability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228
10.3 Structural Forms of Economic Systems’ Controllability
and Observability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229
10.3.1 Controllable Subspaces . . . . . . . . . . . . . . . . . . . . . . . 230
10.3.2 Separation of the Controllable Part . . . . . . . . . . . . . . . 233
10.3.3 The Not-Observable Subspace . . . . . . . . . . . . . . . . . . 237
10.3.4 Separation of the Observable Part . . . . . . . . . . . . . . . . 238
10.4 Decomposition of Constant Coefficient Linear
Economic Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240
10.5 Some Final Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243
11 Flashing with Swords: How Currency Wars Take Place . . . . . . . . . 245
11.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245
11.2 The Basic Concepts and Systemic Intuition . . . . . . . . . . . . . . . 247
11.3 Recent Speculative Attacks and Currency Crises . . . . . . . . . . . 250
11.4 One Possible Form of Currency Wars . . . . . . . . . . . . . . . . . . . 258
11.5 Some Final Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263
Part IV Strategies of Self Defense
12 Self-Defense Through Manipulating Exchange Rate . . . . . . . . . . . . 267
12.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 267
12.2 A Model for Categorized Purchasing Power . . . . . . . . . . . . . . . 268
12.3 The Functional Relationship Between P and (D–S) . . . . . . . . . . 270
12.4 Separating Economic Categories Using Feedback
Component Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276
12.5 A Strategy for National Defense . . . . . . . . . . . . . . . . . . . . . . . 280
12.6 A Few Final Words . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283
13 Self-Defense Based on Feedback Mechanism . . . . . . . . . . . . . . . . . 285
13.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 286
13.2 Formulation of the Problem . . . . . . . . . . . . . . . . . . . . . . . . . . . 289
13.3 Design of Feedback Control with Pure Gain . . . . . . . . . . . . . . . 290
13.4 The Lemma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292
13.5 Design of Linear Multivariable Regulator . . . . . . . . . . . . . . . . 294
13.5.1 Design of Pure Gain Feedback Controllers . . . . . . . . . 294
13.5.2 Design of Linear Multivariable Regulator . . . . . . . . . . 295
13.6 Application in the Control of Production Inventory
System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 299
13.6.1 The Problem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 299
13.6.2 The Solution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 301
13.6.3 Solving the Control Problem of Production
Inventory System . . . . . . . . . . . . . . . . . . . . . . . . . . . . 302
13.7 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305
14 Another Plan of Self-Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . 307
14.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 308
14.1.1 Currency War . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 308
14.1.2 Literature Review . . . . . . . . . . . . . . . . . . . . . . . . . . . 309
14.2 The Main Result . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 314
14.3 A Case Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 316
14.4 Implications of the Established Theory . . . . . . . . . . . . . . . . . . 319
14.5 Some Final Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324
Part V Clean Up Disastrous Aftermath Through Policies
and Reforms
15 Design Economic Policies Based on Various
Performance Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327
15.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 328
15.2 Economic Indicator Feedback and Performance Feedback . . . . . 330
15.2.1 Formulation of the Feedback Problem . . . . . . . . . . . . . 330
15.2.2 Classification of Feedbacks . . . . . . . . . . . . . . . . . . . . . 331
15.3 Design Feedback Control by Using Lyapunov Method . . . . . . . 337
15.3.1 Lyapunov Stability . . . . . . . . . . . . . . . . . . . . . . . . . . . 340
15.3.2 Feedback Design Based on Lyapunov
Second Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343
15.3.3 An Iterative Method for Solving
Lyapunov Equations . . . . . . . . . . . . . . . . . . . . . . . . . 345
15.4 Corresponding Results for Economies Measured
with Discrete Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345
15.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 347
16 Design Economic Policies that Do Not Create
Bumpy Recovery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 349
16.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350
16.2 Pole Placement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 354
16.2.1 Pole Placement by Using State Feedback . . . . . . . . . . 354
16.2.2 An Improvement on How to Place Poles . . . . . . . . . . . 364
16.2.3 Pole Placement Through Output Feedback . . . . . . . . . 365
16.2.4 Determination of Pole Locations . . . . . . . . . . . . . . . . . 367
16.3 The Problem of Eigenstructure Assignment . . . . . . . . . . . . . . . 370
16.4 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 371
17 The Problem of Optimal Macroeconomic Regulations . . . . . . . . . . 373
17.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 374
17.2 The Problem of Optimal Regulation . . . . . . . . . . . . . . . . . . . . 375
17.3 Several Typical Forms of Optimal Regulation
of Economic Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377
17.4 Empirical Cases of Optimal Regulation Problems . . . . . . . . . . . 382
17.5 Some Final Words . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 388
18 Steepest Optimal Policies for Regulating Capital Flows
and Exchange Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 389
18.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 390
18.2 Three Different Combinations of the Impossible Trinity . . . . . . 391
18.2.1 The British Pound Crisis in 1992 . . . . . . . . . . . . . . . . 393
18.2.2 Asian Financial Crises in 1997 . . . . . . . . . . . . . . . . . . 394
18.2.3 Russia’s “Foreign Exchange Corridor” of 1998 . . . . . . 395
18.3 An Elementary Steepest Optimal Regulation Model . . . . . . . . . 396
18.4 Solving the Optimal Regulation Model . . . . . . . . . . . . . . . . . . 398
18.5 A Symbolic Expression for the Steepest Reform Path . . . . . . . . 401
18.6 Systemically Understanding the Solution
of the Steepest Optimal Regulation Problem . . . . . . . . . . . . . . 404
18.7 Some Final Words . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 405
19 The Problem of Optimal Path for Financial Reform . . . . . . . . . . . . 409
19.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 410
19.2 The Problem to Be Addressed . . . . . . . . . . . . . . . . . . . . . . . . . 410
19.3 The Model and Solution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 421
19.4 The Problem of Fixed Amount of Money . . . . . . . . . . . . . . . . . 426
19.4.1 The Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 430
19.4.2 The Solution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 431
19.4.3 A Revisit to the Problem of Maximum Area . . . . . . . . 433
19.5 Some Final Words . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 436
Part VI Specific Case Analyses
20 Renminbi: A New Reserve Currency . . . . . . . . . . . . . . . . . . . . . . . 439
20.1 Strongly Fortified: Strengthen RMB Onshore Market . . . . . . . . 440
20.2 Going Abroad: Expand the RMB Offshore Market . . . . . . . . . . 448
20.3 Island Hopping Campaign: Currencies Swaps . . . . . . . . . . . . . . 458
20.4 Without Match in Asia: Regionalization
and Internationalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 462
20.4.1 Internationalization of RMB, Why? . . . . . . . . . . . . . . 463
20.4.2 Implementation in the Short Run . . . . . . . . . . . . . . . . 463
20.4.3 A Long-Term Outlook . . . . . . . . . . . . . . . . . . . . . . . . 465
20.4.4 RMB Undervaluation and China’s Growth . . . . . . . . . 466
20.4.5 Who Will Gain from an RMB Revaluation? . . . . . . . . 467
20.4.6 Will Other Asian Currencies Follow China’s
RMB Revaluation? . . . . . . . . . . . . . . . . . . . . . . . . . . 469
20.4.7 RMB’s Increasing Influence in Asia . . . . . . . . . . . . . . 470
20.5 Some Final Words . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 473
21 A General Theory of International Money . . . . . . . . . . . . . . . . . . . 475
21.1 The Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 479
21.1.1 A Descriptive Presentation of the Theory . . . . . . . . . . 480
21.1.2 Consequences of the Theory . . . . . . . . . . . . . . . . . . . . 485
21.2 Where Will Euro Go? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 485
21.2.1 An Offspring of Noble Ancestors:
Franc and Mark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 486
21.2.2 Born in a Wrong Time: The European
Sovereign Debt Crisis . . . . . . . . . . . . . . . . . . . . . . . . 493
21.2.3 The Sun Sets: Flowers Fall Off Helplessly . . . . . . . . . . 497
21.3 Some Concluding Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . 499
22 Where Will the US Dollar Go? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 501
22.1 Globalization and Need for International Currency . . . . . . . . . . 503
22.2 The Data Employed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 506
22.3 New Insights Revealed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 508
22.4 Empirical Results Implied by the Data . . . . . . . . . . . . . . . . . . . 515
22.5 Robustness of the Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . 518
22.6 How the Dollar Became the Leading
International Currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 522
22.7 Where Will the US Dollar Go? . . . . . . . . . . . . . . . . . . . . . . . . 523
22.8 Some Final Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 525
23 Where Will Chinese Yuan Go? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 527
23.1 The Growth of Renminbi from a Humble Beginning . . . . . . . . . 528
23.2 Evolution and Development of Renminbi . . . . . . . . . . . . . . . . . 529
23.3 Offshore Financial Centers of Renminbi . . . . . . . . . . . . . . . . . 536
23.3.1 Debates on Emerging Financial Centers
in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 538
23.3.2 Beijing, Shanghai, and Shenzhen
in the Global Arena . . . . . . . . . . . . . . . . . . . . . . . . . . 540
23.3.3 In Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 551
23.4 The Pace of Regionalizing Renminbi . . . . . . . . . . . . . . . . . . . . 552
23.4.1 Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 553
23.4.2 The Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . 554
23.4.3 Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 555
23.4.4 Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 555
23.4.5 Cooperation Priorities . . . . . . . . . . . . . . . . . . . . . . . . 556
23.4.6 Cooperation Mechanisms . . . . . . . . . . . . . . . . . . . . . . 561
23.4.7 China’s Regions in Pursuing Opening-Up . . . . . . . . . . 562
23.4.8 China in Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 564
23.4.9 Embracing a Brighter Future Together . . . . . . . . . . . . 565
23.5 Some Final Words . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 566
24 Avoiding Currency Wars with a Single World Currency? . . . . . . . 567
24.1 A Systemic Evolutionary Model of World Currencies . . . . . . . . 567
24.2 Is a Unified World Currency Possible? . . . . . . . . . . . . . . . . . . . 569
24.3 Regional Single Currencies . . . . . . . . . . . . . . . . . . . . . . . . . . . 570
24.4 Some Final Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 571
Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 573
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 599
Bookscreen
Synopsis
Based on the concept of two-dimensional science, consisting of the classical
science, the first dimension, and the systems science, the second dimension, as
argued by George Klir in the 1990s, this book systematically presents how the
recent systemic yoyo model, its thinking logic, and its methodology can be
employed as a common playground and intuition to the study of money, international
finance, and economic reforms.
After the introduction of the relevant historical grounds, this volume consists of
six parts. The first part addresses issues related to systemic modeling of economic
entities and processes; why a few policy changes could adjust the performance of
the extremely complex economy, although such practice has been in use for
decades with varying degrees of successes; and how to practically estimate the
true state of the economy through using either observers or controllers. The second
part investigates the problem of how instabilities lead to opportunities for currency
attacks, the positive and negative effects of foreign capital, how international
capital flows can cause disturbances of various degrees on a nation’s economic
security, and what could be done to reduce the severity of the disturbances to the
minimum. The third part addresses how a currency war is initiated, why currency
conflicts and wars are inevitable, and a specific way of how currency attacks can
take place. The fourth part shows how one nation can potentially defend itself by
manipulating the exchange rate of its currency and how the nation under siege can
protect itself against financial attacks by using strategies based on the technique of
feedback and develops a more general approach of self-defense. The fifth part
addresses issues related to the cleanup of the disastrous aftermath of currency
attacks through using policies and reforms. The sixth part analyzes specific cases,
where in particular what is addressed includes a look at Renminbi as a new reserve
currency and what China is doing to strengthen Renminbi’s influence in the world
finance, where the euro, the US dollar, and the Chinese Yuan will go in the coming
years. Then Chap. 24 concludes the presentation of this book by addressing the
ultimate problem of whether or not currency wars can be avoided altogether.
By looking at the issues of monetary movement around the world, this book
shows that there are clearly visible patterns behind the flows of capital and that
there are a uniform language and logic of reasoning that can be powerfully
employed in the studies of international finance. By making use of the patterns
and by employing the language and logic of thinking, one can produce interesting,
convincing, and scientifically sound results. As shown in this book, many of the
conclusions drawn on the basis of these visible patterns, language, and logic of
thinking can be practically applied to produce tangible economic benefits.
By studying this book, the reader will walk away with a brand new tool to attack
his or her problems and a collection of practically useful knowledge and conclusions