The debate about the renminbi rages on. But while economists debate the pros and cons of keeping the peg, widening the CNYUSD band or a large, one-off revaluation, little attention has been paid to the financial consequences for the People's Bank of China as it defends the current regime. These are important and our estimates suggest that the current regime is more sustainable than it might at first appear.
Hot and cold capital flows into China last year caused the FX reserves to rise $202 billion. Building a strategic stock of capital has important benefits. One can use it to recapitalise banks, buy oil from overseas or keep it for...
