By expanding the domestic money supply, foreign inflows can fuel inflation.

ECONOMIST: Exchange rates

The second was the huge capital inflows being significantly "understerilized" (insufficiently absorbed by the central bank) that swelled domestic money supply and credit and created China's very own asset bubbles.

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On the other hand, the PBOC is conducting aggressive open market purchases of dollars to hold down their yuan, which is naturally increasing their domestic money supply and offsetting their tightening measures.

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Mr Walker estimates domestic saving from money-supply and capital-account data (which, again, should be more reliable than national-account numbers).

ECONOMIST: China's economy

"Velocity" is defined, roughly, as gross domestic product divided by the money supply.

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Another chart shows that whenever money-supply growth has exceeded gross domestic product growth, small-caps tend to rise.

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Unless this extra domestic currency is mopped up in some way, the money supply rises, banks ramp up their lending, and inflation can take off (which would increase the real exchange rate ie, taking inflation into account and reduce competitiveness).

ECONOMIST: Will China float the yuan, revalue it up a bit, or neither?