BoJ chief ad­vises China to im­pose cap­i­tal con­trols to de­fend yuan

The Pak Banker - - FRONT PAGE -

Bank of Ja­pan (BoJ) Gov­er­nor Haruhiko Kuroda said China should im­pose cap­i­tal con­trols to de­fend the yuan rather than keep burn­ing through cur­rency re­serves.

As he and other in­ter­na­tional pol­icy mak­ers ex­pressed con­fi­dence that the world's se­cond largest econ­omy will avoid a hard land­ing, Kuroda made his pro­posal on the fi­nal day of the World Eco­nomic Fo­rum's an­nual meet­ing in Davos, Switzer­land.

China is strug­gling to hold up the yuan as a slow­ing econ­omy forces it to loosen mon­e­tary pol­icy and prompts cap­i­tal to flee. It now faces ques­tions from in­vestors over just how long it can keep de­ploy­ing re­serves to calm the yuan's volatil­ity. "This is my per­sonal view, and it may not be shared by the Chi­nese au­thor­i­ties, but in this kind of some­what con­tra­dic­tory sit­u­a­tion cap­i­tal con­trols could be use­ful to man­age the ex­change rate as re­gards do­mes­tic mon­e­tary pol­icy in a con­sis­tent and ap­pro­pri­ate way," Kuroda said to­day.

China is burn­ing through its re­serves as it tries to prop up the cur­rency. China's stock­pile plunged $513 bil­lion last year to $3.33 tril­lion, the first an­nual de­cline since 1992 and the hold­ings will drop to $3 tril­lion or less by the end of this year, ac­cord­ing to the me­dian of 12 fore­casts in a Bloomberg News sur­vey this month. They were pro­jected to tum­ble fur­ther, to $2.66 tril­lion by the end of next year.

"The mas­sive use of re­serves would not be a par­tic­u­larly good idea," said In­ter­na­tional Mon­e­tary Fund Man­ag­ing Di­rec­tor Chris­tine La­garde, who sug­gested China bet­ter clar­ify how it man­ages the yuan. China has al­ready tight­ened some cap­i­tal con­trols, re­quir­ing lenders in off­shore yuan-trad­ing cen­ters to lock away more funds in their lat­est ef­forts to com­bat cap­i­tal out­flows.

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