Two currencies circulate in parallel in China, the mainland CNY and the offshore CNH.This implements capital controls as long as their exchange rate is pegged. This papercharacterises this peculiar systembyisolatingtheconventionalchannelsthrough which monetary and liquidity policies sustain it. Using a rare instance of exogenous transitory increases in the supply of money, we find causal evidence that they depreciate the exchange rate and we pin down the interest elasticity of the demand for reserves. Using an instrument for changes in the demand for money, we quantitatively decompose the success of the peg into the joint contribution of monetary and liquidity policies. Using a model of offshore exchange rates and money creation by banks, we show that a menu of policies can be used, and has been used, to smooth f luctuations of the exchange rate of the yuan with the US dollar.