The financial trilemma in China and a comparative analysis with India

Joshua Aizenman and Rajeswari Sengupta

MPRA Paper from University Library of Munich, Germany

Abstract: A key challenge facing most emerging market economies today is how to simultaneously maintain monetary independence, exchange rate stability and financial integration subject to the constraints imposed by the Trilemma, in an era of widespread globalization. In this paper we overview and contrast the Trilemma policy choices and tradeoffs faced by the two key drivers of global economic growth-China and India. China’s Trilemma configurations are unique relative to other emerging markets in the predominance of exchange rate stability, and in the failure of the Trilemma regression to capture a consistently significant role for financial integration. In contrast, the Trilemma configurations of India are in line with choices made by other emerging countries. India like other emerging economies has overtime converged towards a middle ground between the three policy objectives, and has achieved comparable levels of exchange rate stability and financial integration buffered by sizeable international reserves.

Keywords: Financial trilemma; International reserves; Foreign exchange intervention; Monetary policy; Capital account openness (search for similar items in EconPapers)
JEL-codes: E52 E58 F3 F41 (search for similar items in EconPapers)
Date: 2011-11-01, Revised 2012-07-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Financial Trilemma in China and a Comparative Analysis with India (2013)
Working Paper: The Financial Trilemma in China and a Comparative Analysis with India (2012)
Working Paper: The financial trilemma in China and a comparative analysis with India (2011)
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