Thanks Daniel, Looking at 2009 and 2010, estimates of both SAFE (the State Administration of Foreign Exchange) and us suggest quite moderate net financial inflows in China, after netting out the current account transactions, net FDI, and valuation changes. To me that finding is consistent with my understanding that China's capital controle are fairly comprehensive and effective. There are cracks, for sure. But the controls are comprehensive and effective enough to prevent dozens of billions of dollars per month coming in under the radar screen. In the first quarter of this year there was suddenly a flow of around $ 100 billion that is left after netting out the usual components. That is a lot. It is hard to know for sure what explains this inflow in the absence of more information. But I find it hard to imagine that the bulk of this is because of real "hot money" kind of inflows. I find it more likely that this is either influenced by ad hoc transactions taking place between the public sector and China's commercial banks or, as you suggest, influenced specifically by the RMB internationalization (holding and buying and selling of RMB outside of China). The point you raise is a good one. To what extent does the RMB internationalization pose challenges for domestic monetary policy? I am not an expert in these matters. But, in my understanding, in principle, the mainland authorities should be able to observe clearly the net capital flow caused by offshore settlement, since this enters China via a small group of large Chinese commercial banks. And, so far, it has not been a problem to sterilize such flows. However, the government may at times, for whatever reason, end up accepting to buy FX offloaded by the commercial banks. In other words, I would think it is unlikely that these type of transactions could make China's monetary authorities loose control over domestic base money. However, it is possible--and this has probably already happened--that the government ends up accumulating more FX than it really want and is helpful. That points to an issue with the internationalization of a currency that is perceived to be too cheap. Internationalization could in principle help China reduce its long FX position—caused by the fact that its foreign assets are largely in FX and its foreign liabilities largely in its own currency—if foreigners start to issue significant amounts of RMB liabilities. However, as long as financial markets perceive that the RMB can basically only appreciate, more people and companies are interested in holding RMB assets than in holding RMB liabilities. That tends to put further pressure on China’s government as the FX buyer of last resort.