China's Currency Control: Features, Mechanisms, and Effects

Abstract

Five years have passed since China's foreign exchange regime entered the era of current account convertibility in 1994. During the turbulent Asian currency crisis, China's foreign exchange management has met tests and challenges. To fight capital flight and defend the stability of the renminbi, the Chinese monetary authorities tightened foreign exchange controls in 1998. In this context, this paper reviews the evolution of China's foreign exchange management regime and reveals the features of the current regime's functional mechanisms. By critically assessing the successes and failures of the system, the paper examines the nature of foreign exchange policy changes in 1998. The paper concludes that, in the near future, Beijing is likely to consolidate the framework of the current foreign exchange regime by ensuring current account convertibility and keeping its grip over cross-border capital flows.