• China’s financial conundrum and global imbalances
  • (by Ronald McKinnon and Gunther Schnabl)
  • 1. Introduction
  • 2. Three phases of the Yuan-Dollar exchange rate
  • Phase 1
  • Phase 2
  • Phase 3
  • 3. Currency mismatches in immature creditor economies
  • Conflicted virtue
  • Anticipatory sterilisation and sovereign wealth funds
  • Sterilisation and its limits: the Chinese case
  • Open interest parity and monetary control
  • 4. Overcoming three misconceptions about currency stabilisation
  • Misconception #1: the exchange rate can affect the trade balance
  • Misconception #2: Ongoing exchange rate appreciation reduces inflation
  • Misconception # 3: Floating the rate would equilibrate the foreign exchange market
  • 5. Toward a credibly fixed exchange rate