The Temptation of China s Capital Account

Currency fluctuations and inflation need to be taken into account in order to arrive at a real growth figure.

I must calculate how much money I'll spend next week.

In some cases money is also included in the calculation of the fine depending on the severity of the offence.

It is time to add managing the capital account to this list.

This has come at the expense of sectors that are more dependent on equity financing.

The share of income going to capital has been rising, at the expense of labor.

It is hard to argue that the RMB is not undervalued, given China s large and persistent current account and capital account surpluses.

As such, the timing could not be worse to float the idea of speeding up capital account liberalization.

To be sure, a cautious approach should not be allowed to impede incremental progress toward capital account liberalization.

Progress in institution building is also important for a well sequenced liberalisation of the capital account.

The crisis in international financial markets has had a noticeable impact on Europe s real economy.

The Asian financial crisis persuaded China s leaders to shelve plans, launched in 1994, to liberalize the capital account.

China has a two tier system in which the capital account is strictly controlled most other currencies don t distinguish between current and capital accounts.

The same can be said of capital inflows and the upward pressure that they place on the real exchange rate.

A 401(k) is a heavily tax favored account in which workers can save money for their retirement.

Most economists in China seem to support the PBOC s stance, citing the potential benefits of capital account liberalization.

In early 2012, the People s Bank of China (PBOC) released a report calling for policymakers to take advantage of a strategic opportunity to accelerate capital account liberalization.

Moreover, in October, the IMF is set to release official rules of the road for the use of capital account regulations.

Moreover, capital inflows increased significantly, owing to real investment opportunities in the high growth economy and the expectation of renminbi revaluation.

If capital controls can be easily evaded say, by manipulating the timing of transactions or through mis invoicing of trade flows then there will be little effect on the actual volume of capital inflows.

Most economists in China seem to support the PBOC s stance, citing the potential benefits of capital account liberalization. But Chinese policymakers should also recognize the significant risks inherent in relaxing capital controls.

However, the Contingent Credit Line has been allowed to lapse without any alternative through which to assist countries with sound policies in coping with potential capital account crises stemming from sudden outflows of capital.

We owe it to workers victimized by this recession to reinvent finance so that it works to enrich the real economy, instead of enriching only the financiers.

It is deficit reduction, not debt, that is profligate, because it implies wastage of available human and physical capital, quite apart from the resulting misery.

It would also reduce numerous efficiency reducing distortions in the US tax code, including substantial tax advantages for debt financing over equity financing and for non corporate businesses over corporate businesses.

The second, more profound challenge relates to the real economy how to redeploy workers and capital from the industrial sectors facing overcapacity and the most overbuilt cities.

I quickly made an arrangement with a Red Cross relief worker, who used his official van to transport the money to Lungi Airport, Freetown, although he did not know the real contents of the box.

If we have learned one thing in the development business, it is that real reform cannot be bought with donors money, let alone with vague promises of money.

Although currency internationalization is not tantamount to capital account liberalization, progress on the former presupposes progress on the latter.

It is hard to argue that the RMB is not undervalued, given China s large and persistent current account and capital account surpluses. But, despite ending the dollar peg, faster appreciation of the RMB seems unlikely for the foreseeable future.

(b) Key Policy Work Account Work programme account

Declining economic growth strengthens the temptation to loosen monetary policy. But in today s deflationary environment, typical monetary expansion alone can do little to help the real economy, because the money either remains idle or fuels asset bubbles and capital outflows.

As such, the timing could not be worse to float the idea of speeding up capital account liberalization. On the contrary, the Peoples Bank of China (PBoC) and other relevant authorities should consider capital controls, market suspensions, and emergency liquidity provision.

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Until that investment shortfall is made up, the missing capital will serve to depress the level of real GDP in the US by two full percentage points.

The danger is that the potential for a real change in values will be co opted, as has happened so often before, by those who see it as just another opportunity to make money.

Moreover, the IMF does not focus on financial markets per se , but has unique expertise on the linkages between the real and financial economy.