The problem with capital outflows lies in the so-called “impossible trinity”: a country with open capital markets can choose to have a fixed exchange rate or independent monetary policy, but not both. Although China’s soaring debt requires monetary...
cnn.com/2019/12/19/bus…
cnn.com/2019/12/19/bus…
...easing to keep debt-servicing costs from crippling over-extended borrowers, when PBoC pegs the exchange rate, it can only ease in the case of net monetary inflows in the current and capital accounts (i.e. if central bank reserves rise), which is why the current account...
...surplus is so important.
PBoC attempts to resolve this with partial capital controls and with a “dirty” peg, which in turn allows partial control of domestic monetary policy, but as debt continues to rise, monetary easing becomes more urgent even as rising debt tends...
PBoC attempts to resolve this with partial capital controls and with a “dirty” peg, which in turn allows partial control of domestic monetary policy, but as debt continues to rise, monetary easing becomes more urgent even as rising debt tends...
...simultaneously to encourage financial outflows, which of course leads to monetary tightening. The PBoC cannot relieve pressure by devaluing because, as former governor Zhou Xiaochuan explained, by further reducing the consumption share of GDP this makes Chinese growth even ...
...more reliant on (non-productive) investment and debt. It will also almost certainly encourage financial outflows. Complicating matters further is that reducing the growth in debt tends to reduce the current account surplus (although it may also reduce net financial...
...outflows).
As debt continues to rise, these inconsistencies become more extreme, so what can Beijing do? It turns out that the only way to maintain the exchange rate while increasing control of domestic monetary policy is to increase capital controls. Some of us have been...
As debt continues to rise, these inconsistencies become more extreme, so what can Beijing do? It turns out that the only way to maintain the exchange rate while increasing control of domestic monetary policy is to increase capital controls. Some of us have been...
...discussing this problem for years, during which Beijing has increased flexibility in the exchange rate (i.e. the “dirty” peg) while tightening the capital account. I suspect it is hard to go much further on the former, so I guess we are likely to see more action on the latter.
Sorry, I meant to say "reducing the growth in debt tends to INCREASE the current account surplus (although it may also reduce net financial outflows)."
