Financial Trilemma in China and a Comparative Analysis with India

Joshua Aizenman, Rajeswari Sengupta

Research output: Contribution to journalArticlepeer-review

25 Scopus citations


A key challenge facing most emerging market economies today is how to simultaneously maintain monetary independence, exchange rate stability and financial integration subject to the constraints imposed by the trilemma, in an era of widespread globalization. In this paper we review and contrast the trilemma policy choices and trade-offs faced by the two key drivers of global economic growth: China and India. China's trilemma configurations are unique relative to other emerging markets in terms of the predominance of exchange rate stability, and in the failure of the trilemma regression to capture a consistently significant role for financial integration. In contrast, the trilemma configurations of India are in line with choices made by other emerging countries. Over time, India, like other emerging economies, has converged towards a middle ground among the three policy objectives, and has achieved comparable levels of exchange rate stability and financial integration buffered by sizeable international reserves.

Original languageEnglish
Pages (from-to)123-146
Number of pages24
JournalPacific Economic Review
Issue number2
StatePublished - 1 Jan 2013
Externally publishedYes

ASJC Scopus subject areas

  • Economics and Econometrics


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