Central bank warns of capital flows

Rising inflation, commodity prices major threats to emerging markets

It is vital for emerging markets to cooperate better in monitoring cross-border capital flows and reducing the risks of currency exchange-rate fluctuation, a deputy governor of China's central bank said on Monday.

Pan Gongsheng also said the international monetary system should be further reformed to reflect the increasing influence of emerging currencies. This would help reduce global dependence on the dollar and thus avoid US monetary policy from affecting other parts of the world too much.

Pan said increasing volatility of capital flows in and out of emerging economies, including China, have placed great pressure on domestic macroeconomic regulation and financial stability.

"The economic adjustment and recovery is still at a difficult stage. Easing policies of certain developed economies would generate a negative spill-over effect in emerging markets and hinder the global economic recovery," said Pan, deputy governor of the People's Bank of China.

"And inflation would be a threat as commodity prices would rise after a further easing in monetary stance."

Pan was speaking at a forum hosted by the University of International Business and Economics in Beijing.

His remarks came after China witnessed an increase for two consecutive months in banks' yuan holdings for foreign exchange purchases, an indicator of capital flows, and its currency registered its biggest weekly gain in a month last week.

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