Sterilisation: both expensive and risky

“When the central bank buys foreign currency from Chinese exporters, it increases domestic money supply, which could result in the build-up of inflationary pressures – at least in monetarist analysis. The central bank sterilises the inflows by issuing domestic debt instruments. The larger the inflows, the more difficult it gets for the central bank to successfully do that. Failure could result in inflation and asset price bubbles, which is a development that the Chinese authorities have been trying to control for some time.”

(Source: “The US Economy and the Sustainability of Bretton Woods II” - Heribert Dieter)