By Eswar Prasad and Karim Foda

Last year was a calm one for the renminbi. China’s trade and current account surpluses fell below 3 per cent of GDP in 2012, suggesting that the economy was on its way to resolving its protracted external imbalances. Capital inflows eased off and capital outflows rose as the government liberalised controls on outflows. Net accumulation of foreign exchange reserves was just over $130bn, compared to $330bn in 2011 and an average of nearly $450bn per year in the four years preceding that.

But the surge in reserves in the first quarter of 2013 has put the renminbi is back in the spotlight. Rising capital inflows have led to a surge in accumulation of reserves as China’s central bank has attempted to fend off pressures for the renminbi to appreciate. Continue reading »