The Chinese currency’s sharp fall last August has put the spotlight on the country’s foreign exchange reserves that have been dropping, increasing the risk of capital outflows. The falling reserves are not only a result of China’s transition from investment and export-led growth to rising domestic consumption, but also a reflection of the-slower-than-expected economic growth. Meanwhile, more and more wealthy Chinese are moving their assets abroad amid a lackluster domestic environment and the anti-graft crackdown. This is significant for the Chinese economy because the falling forex reserves have led to monetary policy restrictions. What can be possibly done to stabilize capital flows?
The Chinese renminbi reached new highs against the dollar several times in December and is projected to appreciate further in 2014. The worry is that foreign exchange arbitrage is driving up demand for the Chinese currency and this may cause large capital outflows in future. In August 2010, a rusting coin was unearthed in Mambrui, a […]