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Speculating on the Yuan

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Author Info
Bronka Rzepkowski
Abstract

Real and financial imbalances are currently building up in China. They are linked to major capital inflows that have only been partly sterilised by the central bank. Contrary to conventional wisdom, these inflows stem not just from current account operations or FDI. Apart from illegal foreign currency inflows, there is another channel which makes the financial account more permeable to capital inflows than is usually thought. Under these circumstances, a rise in Chinese interest rates aimed at reducing credit growth risks fuelling forex inflows. Higher interest rates would therefore not seem to be compatible with maintaining a fixed exchange rate. In the wake of the expected rise of US rates in 2004, international financial conditions will provide a window of opportunity that could permit scrapping China's currency peg, with only limited risks of the forex markets over-reacting.

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File URL: http://www.cepii.fr/anglaisgraph/publications/lettre/summary/2004/let234ang.htm
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Publisher Info
Article provided by CEPII research center in its journal La Lettre du CEPII.

Volume (Year): (2004)
Issue (Month): 234 (May)
Pages:
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Handle: RePEc:cii:cepill:2004-234

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Related research
Keywords: yuan; foreign exchange markets; interest rate; currency peg; exchange rate policy; capital movements;

Find related papers by JEL classification:
F31 - International Economics - - International Finance - - - Foreign Exchange
E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Determination of Interest Rates; Term Structure of Interest Rates
E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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This page was last updated on 2009-12-17.

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