China as an immature creditor country – the dilemmas for its monetary policy
China as an immature creditor country – the dilemmas for its monetary policy

Summary/Abstract: China as a surplus country is an interesting example of emerging markets economy possessing the status of immature creditor, that is, a creditor which cannot lend in its own currency. Its surplus is financed by net claims on foreigners, mainly in the form of foreign exchange reserves. The central bank becomes a financial intermediary in place of private sector due to the fear of exchange rate risk. At the same time, due to its exchange rate arrangement it is subdued to so called conflicted virtue syndrome (term given by R.I. McKinnon), which is the mirror image of the concept of original sin hypothesis depicted in relation to experiences of emerging market debtor countries. This situation poses dilemma for monetary policy: the choice of appropriate exchange rate regime, capital account liberalization sequences, formulating objectives for monetary policy. The article concludes that the process of changing the exchange rate should be gradual, parallel to financial sector development, liberalization of capital account and the process of internationalization of domestic currency.

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