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China's capital account convertibility and financial stability

Capital account convertibility in China is on the rise. Some see the process as a means of circumventing domestic financial sector inefficiency while others view it as potentially exposing China to financial crises. In considering these different viewpoints, this paper attempts to quantify the impact that opening the capital account will have on the volume of China�s international capital flows. It is found that were China to fully open its capital account, gross non-FDI capital flows are predicted to rise by around 4.6 percent of GDP. While an increase of this magnitude would present a prudential challenge for China�s monetary authorities, it does not appear to be large enough to seriously call into question financial sector stability, either in China or abroad.

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File URL: http://www.uq.edu.au/economics/eaerg/dp/0505.pdf
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Paper provided by School of Economics, University of Queensland, Australia in its series EAERG Discussion Paper Series with number 0505.

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Handle: RePEc:qld:uqeaer:05
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  1. Jacques Miniane, 2004. "A New Set of Measures on Capital Account Restrictions," IMF Staff Papers, Palgrave Macmillan, vol. 51(2), pages 4.
  2. Obstfeld, Maurice & Shambaugh, Jay C & Taylor, Alan M., 2004. "The Trilemma in History: Trade-offs Among Exchange Rates, Monetary Policies and Capital Mobility," CEPR Discussion Papers 4352, C.E.P.R. Discussion Papers.
  3. Eichengreen, Barry, 2004. "Chinese Currency Controversies," CEPR Discussion Papers 4375, C.E.P.R. Discussion Papers.
  4. repec:idb:brikps:9167 is not listed on IDEAS
  5. Eswar Prasad & Shang-Jin Wei, 2007. "The Chinese Approach to Capital Inflows: Patterns and Possible Explanations," NBER Chapters, in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences, pages 421-480 National Bureau of Economic Research, Inc.
  6. Dasgupta, Dipak & Ratha, Dilip, 2000. "What factors appear to drive private capital flows to developing countries? and how does official lending respond?," Policy Research Working Paper Series 2392, The World Bank.
  7. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
  8. Warwick J McKibbin & K K Tang, 1998. "The Global Economic Impacts of Trade and Financial Reform in China," Departmental Working Papers 1998-08, The Australian National University, Arndt-Corden Department of Economics, revised Sep 1998.
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