At the third plenary session of China’s 18th Central Committee (the “Third Plenum”) in November 2013, China’s leaders adopted a broad national reform strategy (see here for a scorecard of the economic plans). Included were the liberalization of the country’s government-controlled financial system and the internationalization of its currency, the renminbi (RMB). A year ago, we argued that when it comes to freeing both its domestic and its external finances, China had a long way to go. We also suggested that the pace of liberalization would remain gradual, reflecting policymakers’ gradualist strategy to manage the risks associated with greater financial flexibility.
Well, they still have a long way to go; but the pace of regulatory change has unmistakably quickened. Authorities have been poking bigger and bigger holes in China’s Great Financial Wall. So big, in fact, that it may not be long before the wall is more symbolic than real. Read More
When the Chinese government wanted to damn the great Yangtze River, it moved more than a million people. When it wanted ring roads running through the 20 million people of Beijing, China built 270 miles in less than 30 years. So, when Chinese leaders say that they want Shanghai to be a global financial center and their currency the renminbi (RMB) to be an international leader, it’s natural to ask how, when, and at what cost... Read More
In the past few years, the U.S. current account deficit has shrunk from over 6% of GDP in mid-2006 to less than 3% today. Since these current account deficits reflect capital account surpluses, many people view them as a symptom of the problems that led to the crisis. That is, funds from abroad were fueling the credit boom in the United States, which in turn fed the boom in housing prices, etc.
Over the past three decades the U.S current account has been in surplus only briefly in the first half of 1990. Since then, it has been continuously in deficit. How is it that the United States can keep borrowing without a collapse in the currency or a surge in borrowing costs? Is there some sort of limit? Read More