China's persistent growth: exchange rate policy and capital flow management

Abstract

This article discusses how China has managed to maintain relative stability over several years of rapid growth, which can also be attributed to the country´s high level of exports. However, with the high inflow of foreign capital, China´s current and capital accounts become surpluses, which contributed to an appreciation pressure on the yuan. Considering that, it was shown how China has aligned the management of the money stock in its economy with the exchange rate policy adopted. If on the one hand China wanted to maintain the fixed exchange rate, while maintaining currency depreciation and competitiveness in international trade, on the other hand having the fixed exchange rate undermined the country's monetary independence, which would be detrimental to sterilizing the effects of the large capital inflow in the country. Therefore, it was possible to demonstrate the role of capital flow management through monetary and exchange rate strategies to stabilize China´s macroeconomy and sustain its growth.