Fifth, the two reforms have different impacts on inflation. Production factor price adjustment will directly increase inflation pressure. If the RMB exchange rate appreciates in response to market demand and supply, that will directly reduce the domestic currency denominated price of imported goods, and reduce inflation pressure through changes towards a more balanced BOP account and the subsequent reduction of passive base money supply.
For the sake of simplification I will describe alternative exchange-rate regimes for the Faroe Islands only. In principle, the same would apply to Greenland, however. At the moment an independent currency for the Faroe Islands is not an issue since the political announcements are that monetary and foreign-exchange policy should still be conducted by the Danish national authorities.