However, these speculative inflows only increase the need for exchange-market intervention and sterilization. In the longer term, the continued growth and modernization of the Chinese economy will require a substantial loosening of current restrictions on the flow of financial capital into and out of the country.
However, if fluctuations in the value of the RMB remain limited within a narrow range, permitting substantial capital mobility would almost entirely eliminate the PBOC's capacity to use monetary policy to stabilize the domestic economy, as any excess of Chinese over dollar interest rates, for example, would trigger large capital inflows.