Abstract

http://ssrn.com/abstract=701273
 
 

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Putting the Cart Before the Horse? Capital Account Liberalization and Exchange Rate Flexibility in China


Eswar S. Prasad


Cornell University - Dyson School of Applied Economics and Management; Cornell University - Department of Economics; Brookings Institution; NBER; Institute for the Study of Labor (IZA)

Thomas Rumbaugh


International Monetary Fund (IMF)

Qing Wang


International Monetary Fund (IMF)

January 2005

IMF Policy Discussion Paper No. 05/1

Abstract:     
This paper reviews the issues involved in moving towards greater exchange rate flexibility and capital account liberalization in China. A more flexible exchange rate regime would allow China to operate a more independent monetary policy, providing a useful buffer against domestic and external shocks. At the same time, weaknesses in China's financial system suggest that capital account liberalization poses significant risks and should be a lower priority in the short term. This paper concludes that greater exchange rate flexibility is in China's own interest and that, along with a more stable and robust financial system, it should be regarded as a prerequisite for undertaking a substantial liberalization of the capital account.

Number of Pages in PDF File: 32

Keywords: Capital controls, exchange rate regime, financial sector weaknesses

JEL Classification: F3, F4, E6

working papers series


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Date posted: April 19, 2005  

Suggested Citation

Prasad, Eswar S. and Rumbaugh, Thomas and Wang, Qing, Putting the Cart Before the Horse? Capital Account Liberalization and Exchange Rate Flexibility in China (January 2005). IMF Policy Discussion Paper No. 05/1. Available at SSRN: http://ssrn.com/abstract=701273 or http://dx.doi.org/10.2139/ssrn.701273

Contact Information

Eswar S. Prasad (Contact Author)
Cornell University - Dyson School of Applied Economics and Management ( email )
440 Warren Hall
Ithaca, NY 14853
United States
HOME PAGE: http://prasad.aem.cornell.edu
Cornell University - Department of Economics ( email )
414 Uris Hall
Ithaca, NY 14853-7601
United States
Brookings Institution ( email )
1775 Massachusetts Ave, NW
Washington, DC 20036
United States
NBER ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Institute for the Study of Labor (IZA)
P.O. Box 7240
Bonn, D-53072
Germany
Thomas Rumbaugh
International Monetary Fund (IMF) ( email )
700 19th Street NW
Washington, DC 20431
United States
Qing Wang
International Monetary Fund (IMF) ( email )
700 19th Street NW
Washington, DC 20431
United States
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