Putting the Cart Before the Horse? Capital Account Liberalization and Exchange Rate Flexibility in China
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Summary:
This paper reviews the issues involved in moving towards greater exchange rate flexibility and capital account liberalization in China. A more flexible exchange rate regime would allow China to operate a more independent monetary policy, providing a useful buffer against domestic and external shocks. At the same time, weaknesses in China’s financial system suggest that capital account liberalization poses significant risks and should be a lower priority in the short term. This paper concludes that greater exchange rate flexibility is in China’s own interest and that, along with a more stable and robust financial system, it should be regarded as a prerequisite for undertaking a substantial liberalization of the capital account.
Series:
Policy Discussion Paper No. 2005/001
Subject:
Balance of payments Capital account Capital account liberalization Capital controls Exchange rate arrangements Exchange rate flexibility Foreign exchange
English
Publication Date:
January 1, 2005
ISBN/ISSN:
9781451975451/1564-5193
Stock No:
PPIEA2005001
Pages:
32
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