First published: The Financial Times, 22/02/2016
The point at which Beijing has to choose its trade-off is approaching fast
The financial turbulence that gripped China and the rest of the world in the past few weeks has blown over for now. Last weekend, with the renminbi stable again, Zhou Xiaochuan, China’s central bank governor, broke a lengthy silence to insist that there was no basis for devaluation, that the country’s reserves were adequate, and that China had no need for tighter capital controls.
These assurances have worked for the time being but the causes of China’s large capital outflows could manifest themselves at any time. China has come up against a problem known as the “impossible trinity”. Resolving it, either by means of a devaluation of the renminbi or tighter capital controls, will have far-reaching consequences….Read more: