To keep its currency at the same level, the Chinese government buys foreign currency flowing into the country in excess of China's needs.
It also has a policy of restricting imports through formal and informal means to try to stop foreign currency reserves from flowing out of the country.
But the spending, along with in-flows of foreign currency through private investments and speculation, what some economists call "hot money," is fueling inflation.
In allowing companies to be rated higher than the government, Moody's is saying that the government is unlikely to restrict the flow of foreign currency during a financial crisis.
It also is more challenging to deal with countries like China that have capital controls in place to regulate the flow of foreign currency in and out of the economy.
During the first six decades of the republic, between 1923 and 1983, Turkey generally adhered to a quasi-statist approach with strict government planning of the budget and government-imposed limitations over foreign trade, flow of foreign currency, foreign direct investment and private sector participation in certain fields (such as broadcasting, telecommunications, energy, mining, etc).
Colombia pursues an independent monetary policy -- the ability to set interest rates -- and free capital flow -- handling of foreign currency reserves -- therefore having a floating exchange rate system.
When foreign capital flows in they must buy foreign currency and pay out their own one, increasing the money supply and stoking inflation.
Mr. Corrigan backed Mr. Zhou's positions on practically every point, saying that China faced such serious problems that it was understandable that Chinese officials would want to control capital flows and retain very large foreign currency reserves.
As remittance inflows are a large and stable source of foreign currency, they behave very differently from foreign private capital flows, which often move pro-cyclically, thus raising incomes during booms and depressing them during downturns (Ratha 2013).
