China long kept a tight hold on its currency as a way to control its economy and to help its factories sell their products overseas. But China has grown in economic power and ambition, and the old restrictions are not helping a country that hopes to call more of the world’s financial shots.



In his new book, “Gaining Currency: The Rise of the Renminbi,” Eswar S. Prasad describes how China’s view of its currency has evolved, starting from the Han dynasty — China invented paper money, of course — to today’s globally ambitious leadership. Mr. Prasad, a professor at the Dyson School of Applied Economics and Management at Cornell University and senior fellow at the Brookings Institution, was formerly head of the International Monetary Fund’s China division. In an interview, he explained China’s motivations, how money can be a back door to overhauling the country’s financial system and why some people fear a financially powerful China.

Why is China reconsidering the role of its currency?

China is increasing its dominance in the world economy. But there was a sense that China wasn’t getting the respect that it felt it deserved. One of the manifestations of that was that its currency was not quite seen as an elite currency.

Chinese policy makers, especially the more reformist-minded officials, recognized that China needs to do a lot of work to get its financial markets ready before the renminbi could become a prominent international currency. Of course, there is a lot of opposition to such reforms because the system worked well for a lot of politically and economically powerful people.