The successful transition to a free-floating exchange rate regime for #RMB requires sound monetary and fiscal discipline, says Jin Zhongxia at the IMF...
With a flexible exchange rate system, China should avoid large macroeconomic imbalances and risk accumulation in the financial system, esp external sector&fiscal imbalance e.g.continuous large current account deficits, overreliance on short-term capital inflows & external debt...
The core of macro-prudential management under a clean floating exchange rate regime involves 3 tasks: controlling aggregate money supply, controlling public debt, especially net public debt, and controlling total external debt including short-term external debt...
Recent studies show in order to fully play the role of a flexible exchange rate as a "buffer", it’s important to avoid excessively high levels of external debt and severe currency mismatches...
In the current challenging external environment and with the gradual opening of the capital market, China has to strengthen macro-prudential supervision of the capital account...
When faced with large capital inflows during a tidal-wave-like cycle, it could set aside part of the #forex reserves to establish a Securities Market Stabilization Fund (SMSF) in a timely manner to deal with inevitable cyclical reversal...
In the process of gradually liberalizing the capital account, the free floating of RMB should be gradually realized to its full extent so as to allow the exchange rate to adapt and adjust to the two-way capital flows.
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