January 12, 2010 (Erwan Mahe - OTCex Group)
It is with unmitigated pleasure that I observed this morning the gelling of a phenomenon relating to Chinese monetary policy which we have been following closely for some time now.
According to Mundell's incompatibility triangle, the following three phenomena cannot coexist in a country:
fixed currency (yuan's peg to the dollar) autonomous monetary policy (which is the difficulty for China) free flow of capital.
In an effort to maintain relative monetary policy independence, while pegging its currency to the dollar, China has long been trying to regulate capital flows (outflows), thus, trying to fight against a natural movement for a country with a chronic current accounts surplus.