China is set to use swelling offshore holdings of its tightly-managed currency worth around 1 trillion yuan $160 billion (106.33 billion pounds) to justify a landmark shift in tactics to relax capital controls.
People’s Bank of China (PBOC) will abandon a time-table approach to liberalizing China’s capital controls. Instead, they are adopting a series of reforms tied to dramatically rising foreign demand for yuan. This demand is rising as the US and Europe hunt down capital and are forcing banks to disclose everything everyone is doing to squeeze every last half-penny out of the private sector they can. This is shifting capital to Asia where the long-reach of the taxman does not stretch.
China is smart for when I was invited to Beijing to meet with the Central Bank during the 1997 Currency Crisis, I was deeply impressed that I was meeting with traders – not academics. China had sent their people to work on foreign exchange dealing desks around the world. I was surprised to have been asked to fly to Beijing since I was not an academic. To my shock, I was confronted with traders and they were light-years ahead of the academic curve.
PBOC (People’s Bank of China) is positioning itself to shift its strategy from shielding the economy against the risk of a 1997/98-style Asian currency crisis to recognizing it has a mature economy. They fully understand that the Asian Crisis was caused by a shift in the capital flows from Asia to Europe to get in on the coming Euro in 1998. China and Southeast Asia have adopted different policies and now have the economies to absorb the inflow of capital that they did not understand back in 1997.
Consequent;y, China is now responding to the booming foreign demand for renminbi products and capital that is knock in its door seeking safety from American and European socialists gone nuts. China’s date with destiny to become the world largest economy surpassing the United States remains on target. China ia adopting the proper policies to maintain its momentum for capital market and capital account reforms.