In short, because the RTSS made cross border capital movements much easier, short term flows have become a major factor in determining the RMB s exchange rate. External shocks affect the offshore exchange rate first, and then feed through to the onshore exchange rate.

In October 2004, the Government of South Africa took further steps to facilitate outward FDI by abolishing exchange control limits on such flows.

An agenda for action could deal with all generic issues related to enhancing productive capacities in trade, technology and investment flows and exchange of experience.

The sustainability of a country's external debt is determined by the projected flows of revenues and expenditures, including those for servicing debt, as well as changes in exchange rates.

Improvements in automatic reporting and exchange of information are being examined in the context of the (Fiscal) Committee's study of the use of withholding taxes and or exchange of information to enhance the taxation of cross border interest flows (2000 OECD report, preface and paras.

Nor do large international reserves guarantee financial stability. There are better ways to enhance stability, from strengthening prudential supervision to taxing and controlling destabilizing capital flows and letting the exchange rate adjust.

Emerging economies leaders fear spillover effects in commodity markets and distortions of exchange rates and capital flows that may compromise their own focus on financial stability. While it is difficult to track the cross border flows fueled by quantitative easing in the so called advanced world, these fears are far from groundless.

Managing the exchange rate becomes much more difficult when capital is free to come and go as it pleases. But it is not impossible as long as policymakers understand the critical role played by the exchange rate and the need to subordinate capital flows to the requirements of competitiveness.

Capital flows

5, 58, 59 and 78) The Committee will continue to work on improvements in automatic reporting and automatic exchange of information in connection with the study of the use of withholding taxes and or exchange of information to enhance the taxation of cross border interest flows (ibid., para. 109 and preface).

Artificially low exchange rates, restrictions on capital flows, and excessively large currency reserves all create global imbalances. Any strategic partnership between Europe and Asia must encourage global economic responsibility based on cooperation and transparency.

However, these flows tend to be more volatile than official flows and pro cyclical.

How can the need for large foreign exchange reserves experienced by emerging market developing countries to provide self insurance against volatility in international trade and financial flows, and the cost of those reserves, be reduced?

Through policy discussions, the exchange of experiences and projects, in particular for improving trade and investment flows, transport infrastructure and energy networks, the integration between the enlarged European Union and other countries will be fostered.

Emerging market policymakers believe that they lack recourse to safety nets that would cushion the impact of volatile flows. Their efforts to self insure, by, say, building up their foreign exchange reserves, perpetuate global economic imbalances.

Why Capital Flows Uphill

This river flows rapidly.

Investment and private flows

Flows to Chile doubled.

financial flows for development.

Capital flows and remittances

But such flows did little to ease payment difficulties, and attempts to meet foreign exchange deficits of TNC related activities by encouraging new inflows of the same kind could also be self defeating (Kregel, 2004, UNCTAD 2005).

The Chiang Mai Initiative aims to help affected countries to cope with disrupted capital flows and maintain exchange rate stability by creating a network of bilateral swap agreements and repurchase agreement facilities among the ASEAN 3 countries.

FDI flows in services between developing countries are growing faster than flows between developed and developing countries.

As long as China was running a trade surplus and receiving net inflows of foreign direct investment, the RMB remained under upward pressure. Short term capital flows had little impact on the direction of the RMB s exchange rate.

And Free Flows the Nile

The Seine flows through Paris.

(d) Contribution and expense flows

C. Investment and capital flows

Private capital flows have come to play the dominant role in development finance, eclipsing both official bilateral and multilateral flows.

A wide range of official measures could be employed to support domestic demand while protecting medium term fiscal sustainability. And, to address volatile capital flows, countries should increase exchange rate flexibility, maintain adequate international reserves, and implement carefully designed capital controls.

The stream flows into the pond.

The river flows under the bridge.

That river flows into the Pacific.

Industrial trade, technology and investment flows

INDUSTRIAL TRADE, TECHNOLOGY AND INVESTMENT FLOWS

Encouraging private capital flows and remittances

The flows generated through new and innovative mechanisms must be additional and should complement the regular flows, including foreign direct investment.

Sources UNFPA, Financial Resource Flows for Population Activities in 2002 (New York, 2004) and UNFPA UNAIDS NIDI Resource Flows Project database.

Sources UNFPA, Financial Resource Flows for Population Activities in 2002 (New York, 2004) and UNFPA UNAIDS NIDI Resource Flows Project database.

Sources UNFPA. Financial Resource Flows for Population Activities in 2002 (New York, 2004) and UNFPA UNAIDS NIDI Resource Flows Project database.

Sources UNFPA. Financial Resource Flows for Population Activities in 2002 (New York, 2004) and UNFPA UNAIDS NIDI Resource Flows Project database.

But, in a world of large short term capital flows, central banks policy interest rates or even just announcements about likely future rates also have a major impact. Moreover, quantitative easing affects exchange rates and trade, even if central banks purchase only domestic assets, as demonstrated by recent movements in the exchange rates of the dollar, the euro, and the yen.

The RMB will continue to appreciate in the near future, owing to strong economic fundamentals, but the inherent instability of short term capital flows will make its exchange rate more volatile. This change is bound to pose new challenges for decision makers in the United States and China, particularly as they engage in a fresh round of debate about China s exchange rate policy.

Innovative proposals mentioned for financing social development included the creation of a tax on international transactions, a scheme for an international finance facility to improve the coordination and transparency of aid flows and programmes of exchange of debt relief for social development initiatives.