Conventional economics suggests that you can only maintain two out of the three key factors:  monetary policy independence, a fixed exchange rate and free cross-border currency flows.  China is succeeding in doing all three at once.  Yu YongDing shows how:

China has run a capital-account surplus for most of the last 30 years, and a trade surplus every year since 1993. The PBOC keeps the exchange rate stable by intervening heavily in the foreign-exchange market, creating so much liquidity that the authorities must engage in massive sterilization to avoid overshooting the targeted increase in the monetary base.

In China, unlike in advanced countries, monetary and sterilization policy are often one in the same. The degree to which monetary policy is expansionary depends on the degree to which the liquidity created by currency-market intervention has been sterilized.

The most frequently used monetary instrument in sterilization is open-market operations. Given China’s twin surpluses, the PBOC sold all of the government bonds that it had accumulated in 2003, so it has been selling central-bank bills ever since, with CN¥5 trillion ($812 billion) in such bills currently held by banks.