the proposed Free Trade Zone in Shanghai will have huge consequences for China’s financial markets and that of the world. It will be a tax-free zone; the RMB will be fully convertible; the FTZ will have its own rules and regulations that cannot be trumped by central government; it will be legally outside the Chinese Customs, in fact a separate territory inside China; it has the effect of abolishing control over capital account investment, so allowing freedom to set up all kinds of companies and moving capital in and out of the FTZ, meaning in and out of China; it will become an international settlement center for international trade and it will allow banks within the FTZ greater flexibility in conducting business. In short, the implications of the development of the FTZ, if the pilot scheme goes smoothly, will be humongous not just for China but for the global economy.

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