China’s Voodoo Accounting

China Economic Quarterly editor Joe Studwell claims:

Beijing has raided tens of billions of dollars of foreign exchange reserves to shore up banks’ capital.

Those who argue that liberalising China’s foreign exchange rate regime would destabilise its financial system may have things exactly backwards.  If what Studwell says is true, then China’s managed exchange rate regime may in fact be perpetuating the systemic problems in its financial system.  Supporting China’s peg to the USD on financial stability grounds could well be a circular argument.

posted on 04 April 2005 by skirchner in Economics

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