China Shows Capital Controls Might Be a Good Idea After All

(Bloomberg) -- China might be wary of declaring “mission accomplished,” but it’s hard not to argue that its policy makers have successfully stared down the yuan bears and quashed speculation of a continuous depreciation or big one-time devaluation of the currency.

A crackdown on capital outflows played a key role in halting the yuan’s slump last year, with measures ranging from a reserve requirement for currency derivatives to strengthened scrutiny of foreign acquisitions and demands valid business explanations be provided on requests for foreign exchange. The spectrum of moves helped to calm traders by late 2016, when the dollar began climbing on bets of U.S. reflation under President Donald Trump.

It’s been two decades since Malaysia was criticized for imposing its own capital controls during the Asian crisis, and China’s recent success may strengthen the G-20’s updated view that they have a legitimate role in avoiding damaging overshoots in financial markets.

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