Study On The Risks Of Chinese Interest Rate Liberation

Based on the theories of "Financial Restricting" and "Financial Deepening", some developing countries began to perform Interest Rate Liberation (deregulation) Reforms from 70s. of the 20 century in order to improve the states of economics and finance. In SOs.of the 20th century, more countries are involved in the reform tidal wave, including many developed countries. During the process of Interest Rate Liberation , many countries significantly benefited a lot while many are negatively affected or even caught in financial crisis, which leaded to the whole economy instability.As for China, interest rate liberation reform with the aim of interest rate liberalization both for deposit rate and loan rate is going along. Benefits of the reform have been widely recognized while the negative effects, in another words, risks, have not been systematically studied. So, the essay attempts to discuss the risks of Chinese Interest Rate Liberation Reform.The essay focuses on the risks of Chinese Interest Rate Liberation: the risks on the economy development and the risks on commercial banks. In the rough, the essay is divided to three parts as follows:The first chapter chiefly presents the meanings of interest rate liberation and the theoretical basis, that is, Ronal Mckinnon's "Financial Restricting" and Edward S. Shaw's "Financial Deepening", especially analyzes the limitation of the theories which leads to the analysis of risks on economy development.The second part consists of two chapters, chapter 2 and chapter 3, discussing the risks of interest rate liberation on the economy development. Chapter 2 analyzes the risks of investment effects (including investment scale effect and investment efficiency effect) resulting from the adverse selection and adverse incentive combining with Chinese facts. Besides, it especially brings forward some particular risks of Chinese interest rate liberation reform. Chapter 3 puts forward the risks of interest liberation on Chinese economy development in detail. It concretely argues the macro and micro factors that constrain Chinese interest rate liberation, and thus presents the proposal of the encounter measures to Chinese interest rate liberation.The third part concludes chapter 4 and chapter 5, centralizing on the risks of interest rate liberation on commercial banks, including temporary risk and perpetual risk. Temporary risks mainly derive from greatly-increasing and violently-fluctuating interest rate and some other ways, from which the author draw the lessons beneficial to Chinese commercial banks and encounter measures to avoid the temporary risks. However, perpetual risk (interest rate risk) is the core risk of interest rate liberation. Accordingly, emphasis is put on the interest risk. Based on the brief introduction and measure method of interest risk, chapter 5 pays attention to the encounter measures of commercial banks to the interest rate risks which mainly involve enhancing the use of asset-liability management in interest risk and the use of financial derivatives.What is new in this essay lies in two aspects. One is that based on the general risks of Interest Rate Liberation, the essay focuses on the concrete risks of Chinese Interest Rate Liberation, revealing the risks of Chinese interest rate liberation reform to economy development and commercial banks; The other is that, to control interest rate risks, the essay details the use of financial derivatives, such as FRA, interest swaps, interest future and interest options. Besides, on the subject, the topic is somewhat new, and on the argumentation method, empirical analysis has been made in the processes, results and characteristics of the interest liberation reform in developed and developing countries.