Author’s Note on the Chinese Translation of Melamed on the Markets

By Leo Melamed

2005

At the time of its publication in 1993, Melamed on the Markets, served a highly important purpose. It chronicled the first twenty years in the development of a brand new financial tool, one that was fast becoming indispensable to modern business techniques. However, the publication was not simply a historical recital of facts and statistics. Rather, Melamed on the Markets provided the financial community with a glance back through the eyes and words of its author who was at the forefront of the birth and development of these new financial tools. In retrospect, the importance of this publication is all the more pronounced, given that financial derivatives have become essential global instruments for the management of business risk and efficient allocation of capital.

At nearly the same time-frame, when financial futures were born at the International Monetary Market of the Chicago Mercantile Exchange, Deng Xiaoping made some visionary proclamations in Beijing. Both events caused revolutionary economic change. Deng urged that The People’s Republic of China focus on development and modernization, allowing facts rather than ideology guide its forward motion. Since that pronouncement, China pursued a pragmatic and nonideological path towards a market-driven economy. The results have been nothing short of astounding. China is today the world’s fastest-growing large economy.  The country has grown around 9 percent a year for more than 25 years, the fastest growth rate for a major economy in recorded history. In that same period it has moved 300 million people out of poverty and quadrupled the average Chinese personal income. Unquestionably, the growth and development of Chinese capital markets deserves unanimous global applause; its government leadership accorded the highest of praise.

China has now reached the moment when financial futures markets must be launched. The effective development of financial derivatives on futures exchanges should be the next step in China’s progression. Not only is this directive necessary for the uninterrupted growth of Chinese capital markets, Chinese futures exchanges, the Shanghai Futures Exchange, the Zhengzhou Commodity Exchange, and the Dalian Commodity Exchange have reached the level of experience that make such a step feasible and desirable. I am personally acquainted with the efforts made by these exchanges to embrace international standards of performance and regulatory requirements. Although there can be no guarantees that adversities and difficulties will not be encountered, these will most likely be normal developmental occurrences and should not be a reason to deny the next step in the metamorphosis of Chinese markets. Today’s China has the required governmental regulatory structures in place, and its futures exchanges have the necessary foundation to proceed.

As Deng Xiaoping observed in 1978, “It doesn’t matter if it is a black cat or a white cat. As long as it can catch mice, it is a good cat.” May I suggest that the power of financial derivatives to allocate capital efficiently is the market equivalent of good cats catching mice. It is an invention that two decades after its launch in 1972, Nobel economist, Merton Miller named “the most significant financial innovation of the last twenty years.” Recently, Alan Greenspan, Chairman of the US Federal Reserve stated that financial derivatives markets, “have significantly lowered the costs and expanded the opportunities for hedging risks that previously were not readily deflected. As a consequence, the financial system is more flexible and efficient, and the economy itself may be more resilient to the real and financial shocks.”

For these very reasons, this translation of Melamed on the Markets is a significant contribution toward the development of financial markets in China. Indeed, the extraordinary efforts of Wang Xueqin, vice general economist of the Zhengzhou Commodity Exchange, who personally took the time and used his considerable talent to translate this work and make this publication possible, are to be applauded by all the members of the Chinese financial community. Clearly, Mr. Wang has my deep gratitude and the highest of praise as well. The timing for the Chinese version of Melamed on the Markets could not be more appropriate.

Respectfully, Leo Melamed.

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