who talks of Milton Friedman in the same reverent tones reserved for saints of the church), but his impressive ability to dissect arguments and challenge the flaws in them undoubtedly improved the final work considerably.
This book also owes a huge debt to the work of the many authors and writers whose books, research papers and articles are listed in the bibliography. I now realise what an enormous amount of effort goes into all of this, and I am extremely grateful to each of them.
Along the way, I have had a lot of help. Much of what I have learned about financial markets has come from former colleagues, business partners, professional advisors, regulators and clients. There are far too many to name each of them here, but I am deeply grateful to all those who have shared the highs and supported me through the lows of my career thus far, and to each and every one who has made my work so much fun over the years.
Specifically in relation to this book, thanks go to Bryan Cheuk and Kenneth Lock, who helped with research on the economic and financial data that appear in it. I am also grateful to Alokik Advani, Andrew Bernard, Cheah Cheng Hye, Rebecca Chua, Fu Hao, Jeremy Grant, Patrick Jacquelin, Sue Johnson, Kai Keller, Paul Kennedy, Michael Lam, Li Yingying, Max Lummis, George Magnus, Michael Moser, James Muir, Edmund Ng, Lisa O'Connor, Matt O'Neill, Ketan Patel, Patrick Young and Zhou Bo, who reviewed various chapters and provided helpful feedback and encouragement.
There are a number of people to whom I am particularly indebted for their extensive comments and advice.
Mustansir Barma provided very detailed feedback on the draft manuscript and corrected several factual errors.
Roland Chai urged me to consider more deeply how digital currencies might affect the future development of the global financial system. Adam Wielowieyski then introduced me to a wide range of research in this area and was exceedingly patient in answering my many questions. This effort was not only interesting and rewarding, but it also led me to change some of my final conclusions.
Jonathan Chow provided insightful feedback on the structure of the book and editing advice, which put better focus on the key arguments. He also gave me some helpful suggestions on the title of the book and various sections.
Nick Gardiner sent me pages of meticulously typed notes on the manuscript, with a huge number of valuable questions and suggestions.
Katie Kolchin was a wealth of information on US financial statistics and much more. Her eye for detail helped significantly improve the chapters covering the development of the US market.
After I thought I had a near-final draft of the manuscript, a mutual friend suggested that I ask Henny Sender to take a look at it for me. I had met Henny a number of years before and knew her to be very thoughtful and knowledgeable about China's financial markets. I was incredibly fortunate that Henny not only looked at the draft for me, but drilled into the manuscript, pushing me to clarify each passage with a sort of nurturing iron discipline I had not encountered since visits to the school matron's surgery at boarding school. Without a doubt, this resulted in a far more polished work than I could ever have accomplished on my own.
Several others provided very helpful comments and advice on the manuscript, but would prefer to remain anonymous. I am deeply grateful to each of them.
Ronald Chan, Uther Charlton-Stevens, Mark Makepeace, Sophie Chen Keller and Shan Weijian gave me extensive advice on the publishing process and were extraordinarily generous with their contacts. I ultimately chose to work with Wiley because of the incredible enthusiasm that Gladys (Syd) Ganaden showed in the project right from the start. Syd, together with Purvi Patel, Sylvie Docherty, Philo Antonie Mahendran and the entire Wiley team were friendly, professional and a delight to work with throughout the process. I am also very grateful to Amita Haylock and Cheng Hau Yeo of Mayer Brown for their professional support and practical advice.
Finally, I must thank Stephanie Tsui for her daily support over many years. Without her efficiency in organising my life, this book would never have been completed.
That all said, any errors, omissions or other failings in this final work (of which I am sure there are many) are my responsibility. I must also stress that the views expressed herein are mine alone, and do not claim to represent those of any of the individuals who have provided advice or support. Nor do they represent the views of any of my former employers or other organisations with which I am associated.
– James A. Fok
Hong Kong
4 October 2021
Chapter 1 Introduction
今天，我主要讲一个问题，就是解放思想，开动脑筋，实事求是，团结一致向前看。
– 邓小平，1978 年中共中央工作会议
Today, I mainly want to discuss one question, namely, how to emancipate our minds, use our heads, seek truth from the facts and unite as one in looking to the future.
– Deng Xiaoping, Central Party Work Conference 1978
On Christmas Day 1991, the hammer and sickle flag was lowered over the Kremlin for the last time. It was a dry, still Wednesday morning and the temperature hovered around one degree above freezing, mild by Moscow standards for that time of year. With that, the Cold War had ended.
History would go on to record it as a triumph of capitalism over communism, and of liberal democracy over dictatorship. The euphoria of the period was famously captured in Francis Fukuyama's 1989 essay and subsequent book, declaring ‘The End of History’, with America's brand of capitalist democracy standing as ‘The Last Man’.1 Indeed, the US had become the sole superpower and the world basked in the glow of the Pax Americana. Even as the US was at the apex of its power, however, the seeds of future crises had been sown.
‘Free market’ ideology had been a major factor in America's victory in the Cold War and, by the fall of the Soviet Union (USSR), US financial markets, with the dollar at their core, had long since attained global leadership. The whole world had become dependent on an American-dominated financial system.
The victory of free market capitalism over communism was so convincing that political parties of the left had to become more centrist – if not outright right-wing – in order to win power. The epochal phrase ‘It's the economy, stupid’ was coined by campaign strategist James Carville during Bill Clinton's successful 1992 presidential campaign and summed up the prevailing mood in the US. Across the Atlantic, in 1995 Tony Blair's Labour Party in Great Britain abandoned Clause IV of the party's constitution, which had previously committed Labour to ‘common ownership of the means of production’. This was seen as a decisive step on the path towards Blair's election victory in 1997.
A significant outgrowth of this free market ideology were the monetarist economic policies advocated by Milton Friedman and economists of the Chicago school. Their popularisation was, in many ways, a reaction against the dominance of redistributive Keynesian economics that had prevailed since the end of World War II (WW2) but which had failed to meet economic challenges faced in the 1970s. The influence of monetarist economics was to have a profound impact on government and central bank policies around the world. The increased role for central banks in managing the money supply within economies de-emphasised fiscal policy and governments’ role in economic management.
Of course, the impact of the collapse of the Soviet Union was not just felt in economic and financial policy.
