Author(s): Eswar Prasad, former Chief of the IMF’s China division, is now the Chief of the Financial Studiesdivision in the Research Department.Thomas Rumbaugh is an Advisor in theIMF’s Asia and Pacific Department, and was Deputy Chief of its China Division when this paper waswritten.Qing Wang is an economist in the China Division.
Pages: 3-20
Year: 2005 Issue:  4
Journal: China & World Economy
Keyword:  GetLinkList(KeywordFilter('capital controls exchange rate regime financial sector reforms'); 'kw'; 'CJFQ');
Abstract: This paper reviews the issues involved in moving towards greater exchange rate flexibilityand capital account liberalization in China. A more flexible exchange rate regime wouldallow China to operate a more independent monetary policy, providing a useful bufferagainst domestic and external shocks. At the same time, weaknesses in China’s financialsystem suggest that capital account liberalization poses significant risks and should be alower priority in the short term. This paper concludes that greater exchange rate flexibilityis in China’s own interest and that, along with a more stable and robust financial system, itshould be regarded as a prerequisite for undertaking a substantial liberalization of thecapital account.