| | Testimony: China's Exchange Rate Regime |
 | | It is the overall current and capital-account positions that matter for judging the extent of exchange rate misalignment—not bilateral trade balances or components of the current and capital accounts. |
 | | China is justifiably concerned that if it floated the exchange rate and opened its capital markets today, the weakness of the domestic financial system could generate large-scale capital flight and sharp currency depreciation in response to bad news. |
 | | It is not useful to identify large-scale, prolonged, exchange market intervention in one direction, and behavior of the exchange rate inconsistent with underlying fundamentals, as implicit pointers of a "wrong" exchange rate and then do little when these pointers signal a problem. |
| www.iie.com /publications/papers/goldstein1003.htm (2066 words) |