China has no intention of getting involved in a "currency war" through a round of competitive depreciations. It is perfectly capable of maintaining the general stability of RMB exchange rate should it come under speculative attack.

This is not only because of the US$4 trillion reserves it holds, but also because of the huge scale of its current economy and the financial assets contained therein. Governments and the central banks of other major economic entities recognize this by continuing to be willing to cooperate with China.

Capital flight or large capital flow reversals are the major reasons for currency exchange rate depreciations in emerging markets. The purpose of capital flight is to avoid risks and seek interest rate arbitrage. If the U.S. dollar exchange rate and the prices of U.S. assets are too high, there will be no space for interest arbitrage.

For a small economic entity, even capital flight in a small amount that would never influence the dollar exchange rate, would be enough to trigger big depreciation of the country's exchange rate. However, the economic and financial assets scales in China are so big that capital flight which is sufficient to trigger RMB depreciation has to be large enough in scale, therefore, leading to the appreciation of the U.S. dollars and price hike of American assets. This makes capital flight not worthwhile and even risky and will even cause confusion in the real economy and the financial markets of the United States.

Needing the Chinese market and China's investment to escape recession, leaders of major countries in the Euro zone, including German Chancellor Angela Merkel and French President Francois Hollande, expressed confidence in the Chinese economy. International economic organizations also expressed their belief in this regard. Sooner or later, the United States will also realize the meaningfulness of this approach.

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