Do China's Capital Controls Still Bind? Implications for Monetary Autonomy and Capital Liberalisation

34 Pages Posted: 25 Sep 2007

See all articles by Guonan Ma

Guonan Ma

Bruegel

Robert N. McCauley

Bank for International Settlements (BIS)

Date Written: August 2007

Abstract

The paper argues that China's capital controls remain substantially binding. This has allowed the Chinese authorities to retain some degree of short-term monetary autonomy, despite the fixed exchange rate up to July 2005. Although the Chinese capital controls have not been watertight, we find sustained and significant gaps between onshore and offshore renminbi interest rates and persistent dollar/renminbi interest rate differentials during the period of a de facto dollar peg. While some cross-border flows do respond to market expectations and relative yields, they have not been large enough to equalise onshore and offshore renminbi yields.

Keywords: Foreign exchange market, capital flows, capital controls, monetary policy, financial stability and the Chinese economy

JEL Classification: F31, F32, F36, G15, G18

Suggested Citation

Ma, Guonan and McCauley, Robert N., Do China's Capital Controls Still Bind? Implications for Monetary Autonomy and Capital Liberalisation (August 2007). BIS Working Paper No. 233. Available at SSRN: https://ssrn.com/abstract=1014311 or http://dx.doi.org/10.2139/ssrn.1014311

Guonan Ma (Contact Author)

Bruegel ( email )

Rue de la Charité 33
B-1210 Brussels Belgium
Belgium

Robert N. McCauley

Bank for International Settlements (BIS) ( email )

CH-4002 Basel, Basel-Stadt
Switzerland

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