A Study On The Path Arrangements Of Capital Account Opening-up And RMB Exchange Rate Marketization In China

Capital account liberalization and exchange rate marketizaiton are not only the important financial market reforms to be carried forward earnestly, but also the hot issues been paid close attentions by academicians. In respect to the process of domestic financial market reform,, along with the interest rate marketization and opening-up of financial markets, capital account liberalization and market-oriented exchange rate reform have become urgent tasks. However, from the current point of view, there are still lots of arguments about these two important institutional arrangements. The key debate lies in the path arrangements of capital account liberalization and exchange rate marketization and how these two assort with each other. With regard to existing researches, despite of the quantity, the relevant theoretical and empirical researches are still not enough to provide strong supporting evidences. Moreover, due to differences in national conditions, international experience cannot be applied to China directly. In this context, the paper studys on the path selection and coordination mechanism of capital account liberalization and exchange rate marketization systematically, in order to provide theoretical and empirical supports for the reforms and opening-up of domestic financial market.This paper studys on the path arrangements of capital account liberalization, reform of the RMB exchange rate mechanism, and their coordination mechanisms. Concerning the capital account liberalization, the paper focuses on the conditions, sequences, and path selection, etc. While in respect to the RMB exchange rate reform, it focuses on the evaluation, the goal, and the path selection, etc. In the research of coordination mechanism, it aims at the inherent relationships of two institutional mechanisms.The paper seeks to make some innovations on the basis of existing researches. On the research issues, the paper overcomes the limitations in terms of data and models, and analyzes the related issues in-depth. On research methods, this paper uses international and historical comparisons, theoretical and empirical models to improve the soundness of the conclusions. The paper also implies the international mainstream or cutting-edge methods, such as policy experiments and quantification of the crisis, capital controls, exchange rate mechanism, to do the researches. To be specified, the main conclusions and innovations of this paper includes:First, this paper studied the path of China’s capital account liberalization arrangement. Firstly, we believe that economic and financial environment in our country has meet the theoretical conditions for opening capital account in China’s current macroeconomic environment, financial market conditions, regulatory framework and so on. Secondly, this article focuses on the capital account opening for the promotion of economic growth. It is found that there were some defects of the existing empirical study on the theory, method and data, especially in the theoretical framework capital account liberalization could only bring short-term growth, but empirical studies generally focus on promoting the long-term economic growth. The traditional research method has been revised. In this paper the author uses the policy experiment, selects42countries official moment as the research base of capital account liberalization, tests on the loan interest rate, GDP and per capita GDP growth changes for validation in the five years before and after the capital account liberalization. It is found that after opening capital account interest rate showed an obvious increase trend, and per capita GDP also showed permanent increase trend, but long-term effect of GDP growth disappeared. At this stage, therefore, it is necessary and sufficient to speed up the capital account liberalization. Finally, this paper expounds the path selection of China’s capital account convertibility, supporting measures and risks and lists the map of the process of capital account convertibility. The above thoughts, methods and conclusions have reflected certain innovation.Second, this paper studied the path selection of China’s exchange rate marketization. This paper appraises the RMB exchange rate system reform in recent years, summarizes the main achievements and deficiencies and designs the immediate and long-term goal of the reform of RMB exchange rate system. For the RMB exchange rate system reform path arrangement, this paper selects the rapid rise and slow appreciation of representative sample and sets up interval VAR model respectively. Impulse response function shows that when the RMB exchange rate appreciated rapidly there was bigger impact on the economic operation and transmission speed was faster in a certain period of time. Therefore, this paper argues that the RMB exchange rate reform path arrangement should be as follows:adhere to the gradual steady pace of the RMB exchange rate reform, at the same time, combining with the movements of the economic cycle, to moderately speed up the pace of exchange rate reform under stable financial conditions, and to modestly slowdown the pace ofexchange rate reform when economic goes down. This paper is one of the few empirical evidences that is provided for the RMB exchange rate system reform path.Third, this paper studied the coordination of capital account liberalization and exchange rate. To quantify the definition of the crisis, capital controls, exchange rate system, to organize the representative data from42countries around the world and to use Probit model to study the different combination of capital account opening and exchange rate system and the relationship between currency crises. The research results of this paper showed that, compared with capital open plus fixed exchange rate system arrangement, capital controls plus middle system and capital controls plus free floating system arrangement will increase the probability of a currency crisis. However, empirical studies have also found that capital account liberalization and free floating exchange rate system will increase the probability of currency crisis. That is to say, our country should be more cautious in the process to a floating exchange rate system. On the premise of capital account liberalization, in order to guard against risks, it is should be devoted to improve the managed floating exchange rate system recently. These methods are first introduced in the domestic, the research conclusion also reflect certain innovation.