Peter Coy — China’s Capital Flight

"Capital flight" means the bleeding foreign reserves.

What Xi is running up against is what international economists call the trilemma, or the impossible trinity. It says that a country can’t have all three of the following things at once: a flexible monetary policy, free flows of capital, and a fixed exchange rate. They fight one another. As soon as China started allowing free (or at least freer) flows of capital, it was inevitable that it would have to give up on one of the other two objectives. If it wanted to keep the yuan from falling, it would have to raise interest rates higher than is good for the domestic economy, essentially giving up on setting an appropriate monetary policy. Or, if it wanted to set interest rates as it pleased, it would have to allow the yuan to sink.

Drop the dollar peg and let the yuan float, like Russia did.

Bloomberg View
China’s Capital Flight
Peter Coy

See also

Bloomberg Business
China Wants a Reserve Currency and Control, But Can't Have Both