Daniel K

The Chinese Capital Outflow Paradox

Michael,

Another intriguing post. Look what is happening in Vietnam. For all its reserves, could the same happen in China? Why not? What's perceived as a strong currency can change quickly, as investors rush for the exits, as inflation creates a central bank reaction, which slows growth and kills leveraged players, and so on, as boom becomes bust. How is maintaining an artificially weak currency and thus printing too many yuan per dollar in the long term beneficial to the yuan? There are too many yuan; each buys less in real terms; it is a recipe for a currency crisis. Why is this incorrect?