Who will bear the cost of stabilizing the RMB exchange rate? Recently, regarding the Renminbi CRS、 A lot has been written about foreign exchange controls and capital outflows, and many friends have raised a question. Many countries can accept the free exchange of their own currencies, allowing the exchange rate to absorb shocks through market fluctuations. Why does China maintain strong management of the RMB exchange rate and capital flows for a long time? The core reason is that China not only wants to stabilize the RMB exchange rate, but also does not want domestic interest rates to be completely tied by US dollar interest rates. It also needs to maintain stability in real estate, local government bonds, banking system, and corporate financing. As long as these goals exist simultaneously, it is difficult to fully open up the capital account. Because once funds can be freely exchanged, flowed, and allocated, RMB assets will directly face competition from US dollar assets. If the interest rate of the US dollar is higher, the liquidity of US dollar assets is stronger, and exits are more free, compensation must be provided for RMB assets to retain funds. This compensation can be higher RMB interest rates, RMB depreciation, RMB asset price decline, consumption of foreign exchange reserves to stabilize exchange rates, or reducing the speed of capital outflows through capital controls. But every choice comes with a cost. Raising RMB interest rates will put pressure on real estate, local government bonds, urban investment, and corporate financing. The free depreciation of the Renminbi will increase import costs and external debt pressure, and also weaken confidence in Renminbi assets. The price of RMB assets has fully fallen, which can achieve market self-regulation, but real estate, bank collateral, local finance, and residents' wealth will all become a mess. Long term consumption of foreign exchange reserves and intervention in exchange rates will also be constrained by reserve size and market expectations. So the easiest way to choose in reality is to restrict the free flow of capital. This can maintain a relatively stable CNY exchange rate, preserve a relatively independent monetary policy, and avoid domestic interest rates being forced to rise sharply during the high interest rate cycle of the US dollar. The cost is also clear, as funds cannot flow freely between RMB assets and USD assets. The ultimate choice for China is to let 'all the meat rot in the pot'. As long as the meat is in the pot, for China, it is an internal balance sheet issue. As long as the problem remains internal, it can be slowly addressed through time, interest rates, extensions, administrative coordination, and risk sharing. The result is that residents' savings are kept in the RMB financial system and local asset pools, and can only be re selected in deposits, wealth management, bonds, insurance, real estate, A-shares, and limited cross-border allocation channels. This is essentially a form of financial repression. There is no better place for residents' savings to go, so that banks can continue to obtain low-cost debt, local bonds and corporate financing can continue to roll, and real estate and urban investment can strive for a longer time to digest risks. From a macro perspective, this is stability. At a micro level, this is the slow recovery of the entire RMB credit system subsidized by residents with low returns, low options, and longer periods of time. Money is still in the system, asset prices have not collapsed rapidly, debt has not exploded in a concentrated manner, but residents bear the opportunity cost, enterprises bear the low return environment, banks bear a longer bad debt cycle, and local finance bears a slower debt digestion. This is the key. The risk has not disappeared, it has only changed the allocation method. The exchange rate has not depreciated significantly, capital has not flowed out on a large scale, and asset prices have not been cleared in one go. Eventually, these pressures will be gradually reflected in residents' income, corporate investment, bank profits, local finance, and asset prices. The cost is that residents receive lower deposit returns, lower financial returns, fewer asset choices, and longer risk digestion cycles. Enterprises are facing low demand, low returns, and low investment willingness. Banks are facing a longer period of bad debt digestion. Local finance is facing the rolling pressure of debt after the decline in land revenue. What the government receives is stable exchange rates, controllable capital flows, and a system that does not explode. Residents bear the burden of low returns, low options, and longer periods of balance sheet repair. This is the real cost of stabilizing the RMB exchange rate.