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Business/Finance See other Business/Finance Articles Title: Beijing still has the tools to maintain financial stability Want... Capital outflow from China seems to be accelerating, judging from the 249.1 billion yuan (US$39.1 billion) drop in July in the net amount of foreign exchange funds held at Chinese banks and the US$93.93 billion decline in the country's foreign exchange reserves in August. The two figures represented the biggest single-month drop in the country's history. Heavy selling of the renminbi by individuals and enterprises has been blamed for the decrease amid an economic slowdown and strong hints of an imminent interest rate hike by the US Federal Reserve. In an effort to stem the selling, the People's Bank of China has issued a statement saying that there is no reason for the currency to depreciate further over the long term, and the government has been using US dollars to buy into the yuan in the hope of propping up the local currency rate in the domestic market. The offshore rates continued to drop, however, raising speculation about sustained depreciation of the yuan. Despite China's economic and financial challenges, it is believed that capital control measures will help stabilize the currency exchange rate and maintain an independent monetary policy while allowing the yuan to depreciate to certain a degree to boost exports. We have observed amid the exchange rate fluctuations that Beijing views the renminbi's stability as a top priority in its efforts to keep an independent monetary policy. It has therefore dealt with the problem of capital outflow by dipping into its immense foreign exchange reserves. In other words, China is determined to support the yuan at a stable rate, even it means selling US dollar assets. The international community has been expecting China to speed up its marketization and the liberalization of its capital market. However, the implementation of major reforms and structural adjustments could severely affect domestic enterprises, individuals and society as a whole. If the economic and financial problems in China escalate, the whole world, not just the country's 1.3 billion people, will be affected. China has no history of bursting of asset bubbles because it has its own way of getting rid of bubbles one by one to avoid big financial crises. While the country is still faced with many challenges, we think that by insisting on its own methods and continuing to promote political, economic and monetary reforms, China can conquer those challenges. Post Comment Private Reply Ignore Thread
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