•  Policymakers will be more cautious in the short-term as they work to ensure that the market volatility and ensuing capital outflows in late 2015 and early 2016 do not have a lasting impact on market confidence. But I believe the Chinese authorities remain committed to liberalising the capital account and promoting the international use of its currency in the medium term. •  The latest 13th Five-Year Plan, announced in March this year, has made clear the aim to reduce foreign exchange restrictions for both corporates and households and encourage the use of the RMB in cross-border payments and international reserves. Progress in RMB internationalisation will ultimately depend on getting right the sequencing of domestic economic and financial reforms. A strong and stable domestic financial system is a prerequisite for further capital account liberalisation and currency internationalisation. China-Singapore financial connectivity: the journey so far Singapore’s financial linkages with China have grown strongly over the years, particularly since the appointment of ICBC as Singapore’s RMB clearing bank in February 2013. •  The offshore RMB market in Singapore has expanded, with a wide offering of RMB products, including deposits, bonds, derivatives, mutual funds, and trade financing. •  China and Singapore have set up cross-border RMB arrangements for Suzhou, Tianjin and Chongqing, enabling corporates in these areas to borrow from Singaporebased financial institutions as well as repatriate proceeds from bonds issued in Singapore. 2  BIS central bankers’ speeches  But China comes to Singapore not only to do business in Singapore.
This discussion highlights that current account surplus countries can forego, at least temporarily, the required adjustment by accumulating international reserves instead. The sustainability of these imbalances, and the extent to which they have contributed to the recent global financial crisis, is still under discussion. BIS Review 65/2010  1  The question of the reserve asset has often been at the center of the debate. But as Mark Carney has recently argued, the adjustment mechanism may be more important than the choice of reserve assets. If adjustment were rapid, symmetric, and global, and if adjustment costs were fairly distributed amongst countries, we probably would not need to gather here today. Unfortunately, this is not the world we live in now. Historically, exchange rate flexibility has often been the answer. While it is not a silver bullet, it remains true that adjustment through the exchange rate is usually faster, and in the end less costly than adjustment through prices and wages. At the same time, of course, discontent with what is often perceived as excessive exchange rate volatility has been an important source of dissatisfaction with the present international monetary system. What constitutes excessive exchange rate volatility, and whether domestic policies or the international monetary system are at the root of it, is a matter of legitimate debate. III.