A possible second line of defence in the face of excessive capital inflows, particularly when these are a structural phenomenon, could be greater liberalization of capital outflows. This should be part of a broader process of fostering domestic financial development, both in order to ensure an efficient allocation of the country’s huge pool of savings and to support China’s increasingly globalized and sophisticated companies.
Related to this broad project is also the objective of enhancing the role of the renminbi as an international currency. In this context, the introduction of some degree of exchange rate flexibility (possibly increasing over time) can be seen also as a way of gradually allowing domestic investors and firms to familiarize with the management of exchange risk.