People's Bank of Governor Zhou Xiaochuan said monetary policy was becoming tougher to implement with rising inflows of foreign capital. Saying that government efforts to slow the economy had reached a critical, Zhou said the amount of foreign currency converting into RMB is growing fast, forcing the bank to put �a relatively high volume� of base money into circulation to support the fixed US dollar peg. And it was that increasing money supply that made it more difficult for the central bank to curb lending growth. The PBOC had earlier reported that China used RMB 536 billion (US$ $65 billion) to absorb up incoming foreign exchange in the first half of 2004.
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