| I The BackgroundIn recent years, the volume of short-term capital flows is increasing sharply, the exchange rate fluctuates fiercely, and the money crises happen frequently. The new phenomena aroused general concern all over the world. Since the development of financial innovations, it is difficult for the governments to supervise the short-term capital flows effectively. The academics, all over the world, begin to research into how to supervise it. In the early time, there were several famous scholars studying this. For examples, B. Ohlin focused on the influence of the short-term capital flows on the country; R. Nurkse focused on the capital formation in underdevelopment countries; James E. Meade focused on the impact of the capital flows on the Balance-of-Payments. But there is only one scholar, Charles P. Kindleberger, who studied the short-term capital flows systematically in his famous book International Short-term Capital Movements, published in 1937. In this book, he studied the influence upon the money supply and BOP; his main focus was on the influence, without talking about the supervision. Now, there are a lot of researches on the financial crises and international capital flows. However, there is nearly no systematic research on the short-term capital flows, especially on its supervision. So, I plan to study the short-term capital flows thoroughly.II The main points and the difficultiesIn this research, there are three main points: the risks of the short-term capital flows; the monitor system about it; the supervisory system about it.First, the risks of the short-term capital flows. I plan to study the impacts on financial markets, the exchange-rate regimes, the monetary policies, and the contagion of crisis. In this point, the difficulties are as follows: Jamaica Agreement, after Bretton Wood System, is in a mess. Because of the fragile currency markets and the disequilibrium in international monetary system, there are few choices of the exchange-rate regimes available for the developing countries. Most of them use pegged system, currency board, or crawling system, which are the disguised fixed exchange-rate regime. Among the developed countries, there also exists this problem. With the development of globalization, especially the establishment of European Monetary Union (EMU), there will be more and more monetary unions that will adopt the fixed exchange-rate regime, which is the main target of the short-term capital flows. According to Mundell-Fleming model, the government can't adopt the fixed regime, the independent monetary policy and the perfect mobility of the capital at the same time. It's very difficult to deal with the contradiction between the theory and the reality, but we have to solve the trilemma.The second is how to monitor the short-term capital flows. It has been almost blank until now. There are a great many researches on the leading indicators of currency crises. The most important models are: Kaminsky-Lizondo-Reinhart model (1997), Frankel-Rose model (1996) and Sachs-Tornell-Velasco model (1996). In these models, there are no indicators about the short-term capital. Meanwhile, all of them can't forecast the currency crisis correctly. According to the theory of self-fulfilling (Obstfeld, 1986), the crisis is un-predicable. But, I think there must be some abnormal phenomena in the pre-crisis period, the short-term capital flows in particular. We can use the short-term capital flows to establish a warning system. The difficulties are as follows: for the lack of the former research in this field, I can only do some tentative studies on it and there is the risk that the warning system fails to work.The third is about the supervisory system. Because of the globalization, the financial deepening and financial liberalization, the capital flows very fast. Financial innovations make the flows be difficult to be regulated. I plan to establish a supervisory system to regulate the short-term capital flows effectively. The difficulties are as follows: the system includes many scopes. During establishing the system, I need the combination of theory and practice, and need some new knowledge about the modern supervision and about the operations in the real life.During study, I have read many books on the theories of international finance and the econometric models. When I was preparing this research plan, I have studied intensively some books about the theories of supervision and the exchange rate, and the three warning models in particular. III The research methodsThe main methods are as follows:The comparative study. When studying the differences among the short-tem capital, the fictitious capital, the speculative capital, and the venture capital, I will use this method.The combination of qualitative analysis and quantitative analysis. During establishing the monitor system and supervisory system, I will use the econometric models and other theories to analyze, quantitatively and qualitatively.The use of macroeconomic theories. During the analysis of the factors that influence the short-term capital flows, I will use the theory of interest-rate parity, the theory of rational anticipation, the game theory, etc. In the mean time, I will use the regional economics, the theory of exchange-rate and the theory of finance to analyze the risks of the short-term capital flows; use the theory of modern supervision, the institutional economics and the information economics to establish the supervisory system.The combination of theory and practice. During establishing the supervisory system, I must use this method to study it. IV The StructureThere are two main parts, one is about the short-term capital flows, and the other is about the monitor and supervision.Chapter One Introduction;Chapter Two The Patterns of Short-term Capital Flows;Chapter Three The Risks of Short-term Capital Flows;Chapter Four The Supervision and Regulation of Short-term Capital in the World;Chapter Five The International Cooperation in the Supervision and V The main contentsThe first chapter is to define the short-term capital and to describe the characteristics and tendency of the short-term capital flows since 1990. The main contents are as follows: 1. the definition of the short-term capital; 2. the relationship and differences among the short-term capital, fictitious capital, speculative currency, hedge funds, and venture capital, etc.; 3. the formation of short-term capital; 4. the characteristics of short-term capital flows, specially the impact of establishment of the EMU on the short-term capital flows. The phase achievement is to publish a paper about the differences among these different capitals.The second chapter is about the patterns of the short-term capital flows. The main contents are as follows: 1. the factors that influence the short-term capital flows. I will employ some theories to analyze the following factors: the interest rate spread, the difference in rate of exchange, expectation, the government reputation, the convertibility of capital account, business cycle, international trade, inflation, etc.; 2. the patterns of the short-term capital flows. I will study this from trade, financing activities, and stock investment and research into the conditions when the capital flows in and flows out. 3. the carriers of the short-term capital flows, mainly including the derivatives and hedge funds. Phase achievement is to publish a paper about the factors that influence the short-term capital flows.The third chapter is about the risks of the short-term capital flows. I will analyze this from two angles, namely the host countries and the recipient countries. The main contents are as follows: 1. the impact on financial markets; 2. the impact on the exchange-rate regime. James E. Meade pointed out that the country is in a dilemma whether to take the fixed exchange-rate regime or let the short-term capital flow freely. The Mundell-Fleming model pointed out further that there is an impossible trinity, i.e. the government couldn't take the fixed regime, the independent monetary policy and the free mobility of the capital at one time. That is to say there is a contradiction between the fixed regime and the free mobility of the capital. How to solve the trilemma? I will research into how to choose a suitable regime both for the developing countries and for the developed countries, especially whether the fixed exchange-rate regime in the Euroland can avoid the speculative attack of the short-term capital. 3. the impact on monetary policy; 4. the contagion of crisis. After the above analysis, I will research into the comprehensive influence of the short-term capital flows over the recipient/host countries and publish it as the phase achievement.The fourth--sixth chapters are about the regulation and supervision of the short-term capital flows. The principles are to magnify the risk of the speculation and to reduce the profit margin. All the supervision is divided into two parts: one is the supervision on ordinary days to iron the fierce fluctuation; the other is the supervision during the crisis to minimize the damage. I will use the theory of imperfect-contract supervision, the cost-benefit analysis, public choice theory to analysis this from four levels. The main contents are as follows:The first level is the domestic regulation and supervision. There are four sides: 1. the regulation and supervision of the commercial banks and non-bank financial intermediaries. Here, I focus on the problems related to the short-term capital flows. 2. the macroeconomic policy, mainly focusing on the capital account convertibility and Tobin tax. I will analyze the costs and benefits when the developing countries open their capital accounts, and whether Tobin tax can prevent the crisis from self-fulfilling, and the effectiveness of the two-tier Tobin tax. 3. the monetary policy, mainly the exchange-rate policy and the interest-rate policy. I will study the choice of a suitable regime and the costs and benefits of the high interest-rate policy in the developing countries. 4. the construction of the laws and regulations. Phase achievement is to publish a paper about the coordination of the policies to minimize the risk and to maximize the utility of the short-term capital flows.The second level is the international coordination, mainly including the governments, the central banks and the fiscal organizations, etc.The third level is the cooperation of the international organizations, including International Monetary Fund (IMF), World Bank, World Trade Organization (WTO), Bank For International Settlements (BIS), International Organization of Security Commissions (IOSCO) and Basel Committee. Neither Basel Accord nor Core Principles for Effective Banking Supervision prevented the crises from happening, and the world criticized the role of IMF during the Asian crisis. We can see that it is impossible for only one organization to supervise the short-term capital flows effectively. But the fact is that there is no substantive cooperation among these organizations in supervising the short-term capital flows. So, the main contents are: 1. how can we do to improve the functions of each organization to supervise the short-term capital flows effectively; 2. how do these international organizations cooperate in supervising the short-term capital flows.The last level is the reform of world monetary system. Since 1990, the crises mainly happened in the developing countries. The wrong economic policies would take the blame, but the chaotic world monetary system also contributed to it. The launch of the euro will challenge the dollar-dominated world and will stabilize the world economy. I will study the reform of world monetary system focusing on the supervision and regulation of the short-term capital flows. The general principle is to let the capital move freely and orderly.
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