Policy Recommendations to Prevent Financial Risks Caused

Policy Recommendations to Prevent Financial Risks Caused by Speculative Capital Flows

TANG Xu1( 唐旭) and LIANG Meng2( 梁猛)
1PhD in Economics, Doctoral Advisor, Staff of Bank of China
2PhD in Economics, Post Doctorate in Finance, Staff of Bank of China

Editorial note:In recent years, there have been numerous discussions on so-called “hot money” in China's foreign economic sphere. The two authors from the People’s Bank of China analyzed some of the basic issues of “hot money”. In this article, they not only discuss the definition of hot money and access channels, but also estimate the amount of hot money and propose some policy suggestions worth exploring.

I. Foreword
In recent years, massive amounts of international capital have been flowing into developing countries.According to World Bank estimates (HE Zerong, XU Yan, 2005), net flow of private capital into developing countries in 2005 reached a record high of US$491 billion. Moreover, China has become a major destination for international capital, with billions of dollars of funds being injected into its capital markets.As a result, the issue of hot money has come to the spotlight in recent years.

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