Special Zone Currency: Shenzhen’s Monetary Experiment and China’s Foreign Exchange Reform

Between 1981 and 1985, policymakers in the People’s Republic of China (PRC) initiated discussions and preparations for the issuance of a “special zone currency,” a proposed legal tender designed exclusively for use in Shenzhen, the country’s first Special Economic Zone (SEZ). During this early reform era, as Shenzhen opened to international trade and foreign investments, three currencies simultaneously circulated in the SEZ: the PRC’s official currency, the Renminbi (CNY); the Foreign Exchange Certificate, designated for tourists, members of the Chinese diaspora, and entities eligible for foreign trade; and the Hong Kong Dollar (HKD). Despite its official prohibition in mainland China, the HKD was widely accepted and even preferred by local restaurant owners, shopkeepers, and taxi drivers. Interestingly, Chinese authorities themselves showed a preference for HKD. To bolster the state’s foreign currency reserves, the Shenzhen Municipal and Guangdong Provincial Governments mandated that Sino-foreign joint ventures pay their electricity bills in HKD. The proposed special zone currency aimed to resolve the confusion caused by the coexistence of these three currencies and, more importantly, to “expel the Hong Kong Dollar,” which had become the de facto dominant currency in Shenzhen, overshadowing the CNY. Despite these plans, the proposal for a special zone currency was permanently shelved in 1985, even after the Shenzhen Municipal Government had gone so far as to stockpile special paper for printing the currency. This presentation examines the debates among Chinese economists, policymakers, and foreign advisors from Japan and Singapore regarding the special zone currency, highlighting how Shenzhen’s aborted monetary experiment became a pivotal chapter in the history of China’s foreign exchange reform. It also underscores the experiment’s implications for the Chinese government’s ongoing efforts to internationalize the CNY.