For example, many industrialized countries, including Japan, enjoy free capital flows and independent monetary policy at the expense of having floating foreign exchange rates. On the other hand, China seeks a de facto fixed foreign exchange rate and independent monetary policy at the expense of regulated capital flows.
Although China is gradually easing regulations on capital outflows, the deregulation of capital flows may cause instability if unaccompanied by reform of the domestic banking system, as the experience of the Asian currency crisis shows clearly.