Managing China’s impossible trinity and suggestions for Viet Nam

Abstract

    In recent years, China is on the road to internationalizing the CNY, one of the important goals is to stabilize the exchange rate. In the face of an escalating US-China trade war, in August 2019, China continued to devalue CNY to support exports, however, the country also does not want to devaluate the domestic currency. A sharp drop in the CNY will likely trigger capital outflows from China, the strong devaluation of the domestic currency will push up inflation and monetary policy need to intervene to regulate the economy. These goals put increasing pressure on China's impossible trinity: stabilize exchange rates, liberalize capital flows and independent monetary policies. Vietnam still implements a policy of regulating floating exchange rates with regulation, and CNY is one of 8 currencies in Vietnam's central exchange rate. Therefore, the study of mannaging China’s Impossible Trinity, thus making suggestions for Vietnam, is extremely urgent.