The Chinese central bank this year has indeed offset, that is, sterilized, much of its heavy dollar purchases by reducing its loans to commercial banks, by selling bonds, and by increasing reserve requirements. But currency and commercial bank reserves have been rising enough to support a growth of the money supply well in excess of a 20 percent annual rate so far this year.
Here, let me recall that recent crises exposed weaknesses in the risk management practices on the part of creditors and investors in industrial countries, pointing to the importance of financial market regulation and supervision.