| The process of establishing socialist market economy with Chinese characteristics is also the process of the market-oriented reform of China’s exchange rate regime.The marketization of exchange rate is not only the need for China to integrate into the world economic system,but also the internal demand of the development of market economy with Chinese characteristics.The marketization of exchange rate means that its determinations and fluctuations depend on the game of supply and demand forces in the foreign exchange market,and then brings huge risks to a national economy,and it is necessary to deal with the relations among exchange rate stability,capital account opening and monetary policy independence.If there is a mismatch of the three mentioned above,it is very easy to cause the risk of external shock.With the continuous increase of China’s economic volume and the rising status of RMB in cross-border trade settlement and international reserves,the internationalization of RMB also has internal requirements for the marketization of exchange rate and the opening of capital account,or it will be contrary to the internationalization of RMB,because the rigid exchange rate regime can not promply reflect the economic fundamentals and the fluctuations of economic variables.And with the accumulation of distorted contradictions between supply and demand,there is a huge risk of exchange rate collapse.The inability to regulate cross-border capital flows has become an obstacle to the internationalization of RMB.Meanwhile,the central bank will pay high management costs to maintain the fixed exchange rate,and the effectiveness of the sterilized intervention from the central bank in the foreign exchange market will be weakened.In short,the market-oriented reform of the RMB exchange rate regime has strengthened the market determinants of the RMB exchange rate,and the RMB exchange rate has entered a two-way fluctuation channel,which indicates that the greater the degree of China’s openness to the outside world,the more external risks it bears.How to deal with the relationship among exchange rate marketization,capital account opening and independent monetary policy has become very important.Krugman（1999）[1]put forward the Mundellian Trilemma,namely the Impossible Trinity,which emphasizes that a country can only simultaneously achieve at most two of the three policy objectives---free capital flow,exchange rate stability and monetary policy independence,or external shocks will occur.That is to say,when a country opens its capital and implements a stable exchange rate regime,it will lose the independence of monetary policy because the free flow of capital will eliminate the interest rate spread between domestic interest rate and world interest rate,making the monetary policy of open economies invalid;When a country carries out a stable exchange rate system and maintains the independence of its monetary policy,the capital account cannot be liberalized,and the free flow of capital will cause exchange rate volatility and make it difficult to stabilize the exchange rate;When a country aims to pursue capital account opening and independent monetary policy,it is difficult to maintain a stable exchange rate,and the floating exchange rate is conducive to avoiding the speculative risk of arbitrage caused by the free flow of capital.The Mundellian Trilemma vividly and profoundly illustrates the contradiction,difficulty and risk of pursuing three policy objectives simultaneously in open economy.However,the Mundellian Trilemma is only a pure theoretical abstraction,or a theoretical analysis framework to clarify the internal relations and conflicts between the macro policy objectives of open economy,and then a complete assumption of the free flow of capital account,the free floating of exchange rate and the independence of monetary policy is made.However,in the actual operation of open economy,there are often incomplete free flow of capital account,free floating of exchange rate and independence of monetary policy.With the development of economic globalization and financial integration,it is difficult for any open macro economy,especially in a major economy,to choose only one side and two corners and give up one corner.Any open macroeconomic subject is seeking the stability mechanism of floating exchange rate,the risk aversion mechanism of capital account opening and relatively independent monetary policy.After joining the Jamaican system,the number of countries adopting the intermediate exchange rate regime has increased significantly（2）,which is contrary to the theory of the“disappearance of the intermediate exchange rate regime”.In the process of economic growth,many emerging markets and developing countries have accumulated a large amount of foreign exchange reserves,implemented a managed floating exchange rate regime,partial capital opening and relatively independent monetary policy,and balanced the three paradoxical policies called the“Middle Ground”of the Mundellian Trilemma,also the evolution of the“non-corner solution”of the Mundellian Trilemma and then relative capital flows,exchange rate flexibility and partial monetary policy independence have also been reconciled simultaneously.After the Asian financial crisis in 1997,emerging market countries incorporate financial stability into their policy objectives,and the“Middle Ground”of the Mundellian Trilemma is conducive to their financial stability.It can be seen that,under the“Middle Ground”of the Mundellian Trilemma,dealing with the relationship among the marketization of exchange rate,capital opening and the independence of monetary policy is an important principle of the marketization reform of RMB exchange rate system,and the managed floating exchange rate regime of RMB is the optimal choice at the present stage.In fact,emerging market countries,to some extent,have realized the“Middle Ground”of the Mundellian Trilemma by accumulating large-scale foreign exchange reserves,but due to the management cost payment limited by high-scale foreign exchange reserves and the weakening effect of foreign exchange market intervention,other supporting policies are needed to achieve the“Middle Ground”of the Mundellian Trilemma.This paper reexamines the significance of foreign exchange reserves for the“Middle Ground”of the Mundellian Trilemma and explores the effectiveness of macro-prudential policy for the realization of the“Middle Ground”of the Mundellian Trilemma.Under the“Middle Ground”of the Mundellian Trilemma,it is of great significance for the market-oriented reform of the RMB exchange rate regime at the present stage to clarify the interaction mechanism among capital opening,the choice of exchange rate regime and the independence of monetary policy,and to deeply explore the exchange rate expectation and the effect of policy intervention.Under the market economy system with Chinese characteristics,the effects of capital opening and exchange rate marketization on the internationalization of RMB,economic growth and other macro-economic objectives should be included in the policy objectives of the Mundellian Trilemma.On the basis of the theory of the Mundellian Trilemma and its“Middle Ground”,this paper analyzes the direction of the market-oriented reform of RMB exchange rate regime and macroeconomic effects.The main research contents,methods and conclusions are as follows:First,according to historical and characteristic fact analysis,this paper explores whether the Mundellian Trilemma is still credible and clarifies the circulation evolution of the international exchange rate regime from fixed to floating,the historical process and characteristic facts of the marketization reform of the RMB exchange rate regime.Based on the Mundellian Trilemma,the interrelation among the choice of the exchange rate regime,the capital management and the independence of monetary policy in each period from the global and Chinese levels is discussed.And according to the policy collocation of the Mundellian Trilemma,the reasons for the collapse of the fixed international exchange rate regime under the Gold Standard System and the Bretton Woods System are expounded,finding that the Mundellian Trilemma can better explain the causes for the market-oriented evolution of the international exchange rate regime.With the deepening of global financial integration and the self-development of economies,countries need proper exchange rate flexibility to adjust capital flows and enhance the ability of using monetary policy to regulate macro-economy.With the increase of the scale of cross-border capital flows,nations also face new challenges in their choice of capital opening policies,exchange rate policies and monetary policy independence.And with the expansion of foreign exchange reserves of emerging markets and developing countries,the“Middle Ground”of the Mundellian Trilemma has become a realistic choice for most of them.Second,this thesis probes into the influencing factors behind the“Middle Ground”of the Mundellian Trilemma and the conditions of macro-prudential policy on it,and puts forward a new maintenance mechanism of the managed floating exchange rate regime of RMB at the present stage.And through the characteristic fact and the empirical analysis,it is found that,under the threshold effect of foreign exchange reserves,the macro-prudential policy contributes to the“Middle Ground”of the Mundellian Trilemma,and then helps to achieve the national financial stability.Combined with the application of macro-prudential policy and foreign exchange reserves,the execution of the managed floating exchange rate regime of RMB at the present stage can be maintained by coordinating foreign exchange reserves and macro-prudential policy,but an appropriate scale of foreign exchange reserves is required.Third,the influence of the marketization reform of RMB exchange rate regime on the independence of monetary policy is examined here.The research findings show that,under the“Middle Ground”of the Mundellian Trilemma,the central bank may maintain the independence of monetary policy by making use of foreign exchange reserves and the excessive fluctuations of exchange rate of sterilized intervention（the central bank bills,the deposit reserve ratio adjustment and etc.）.The effectiveness of sterilization intervention directly affects the money supply and the independence of monetary policy.Under the intermediate exchange rate regime,domestic and foreign interest rate spread and exchange rate expectation will have an impact on exchange rate volatility,and then affect the balance of supply and demand in the foreign exchange market.The greater the degree of sterilized intervention,the less the impact of changes of foreign assets（change in foreign exchange reserves）on domestic interest rates,the independence of monetary policy is thus enhanced.Through the theoretical analysis,the results of the research support the view of interest rate parity theory determined by exchange rate.Through the capital account channel,the implementation of floating exchange rate regime may strengthen the independence of the national monetary policy,and under the current account channel,it may also weaken the independence of the national monetary policy in a narrow sense because the monetary authorities need to use the monetary policy to adjust aggregate demand.Therefore,there is a risk of weakening the independence of monetary policy in the execution of floating exchange rate regime under capital opening.Fourth,this paper investigates the effects of the market-oriented reform of RMB exchange rate system on the opening of capital account and explores the interaction between the choice of exchange rate regime and capital account openness.It is found that after the exchange rate marketization reform,the central bank can jointly regulate cross-border capital flows through exchange rate and interest rate policies,but domestic economy will be correspondingly affected by exchange rate and interest rate fluctuations.According to the revised BGT model,the monetary policy equation and capital flow equation of the loss of the central bank policy before and after the market-oriented reform of the exchange rate regime are also obtained respectively in this paper.As China’s capital flow will be influenced by the monetary policies of the United States and other major countries,under the current RMB exchange rate formation mechanism with managed floating exchange rate regime,exchange rate expectation and capital flow may reinforce each other,thus aggravating the expectation of unilateral depreciation of RMB exchange rate.Fifth,the correlation and suitability of the market-oriented reform of RMB exchange rate system with capital account and independent monetary policy are tested by empirical research.And based on the Mundellian Trilemma,this paper analyzes and extracts the reasons for the marketization trend of the international exchange rate regime,conducts the empirical analysis through OLS（ordinary least squares）regression,fixed effect model and random effect model,and then the correlation and suitability of the market-oriented reform of RMB exchange rate system are also discussed.The result shows that the stability of exchange rate is negatively correlated with the independence of monetary policy and the openness of capital.A country needs to weigh the three policies mentioned above,which is in line with the constraint of the Mundellian Trilemmathe on the choice of exchange rate regime.With all variables for regression analysis,exchange rate stability has a negative correlation with inflation rate,level of financial development,scale of foreign debt,actual shock,degree of political democracy and political instability,and a positive correlation with foreign exchange reserve scale,degree of trade openness and currency shock.The study also indicates that,compared with the average value of exchange rate stability,capital opening index and monetary policy independence of other nations over a long time,China has paid more attention to maintaining exchange rate stability,choosing relatively strict capital control measures and placing greater emphasis on the monetary policy independence.With a large amount of foreign exchange reserves in hand,China’s Mundellian Trilemma develops towards the direction of the“Middle Ground”.With the international experience as reference in the selection of exchange rate regime,the managed floating exchange rate regime is adopted in China,which is in line with our current economic scale and financial development.However,with the gradual progress of China’s capital opening process,our exchange rate flexibility can be moderately liberalized in order to maintain a relatively independent monetary policy.Sixth,the macro-economic effect of the market-oriented reform of RMB exchange rate regime under the Mundellian Trilemma is investigated and the choice of the Mundellian Trilemma and the market-oriented reform of RMB exchange rate regime are evaluated.First of all,on the basis of the SV-TVP-VAR model,this paper empirically explores the impact of capital opening and market-oriented reform of exchange rate regime on RMB internationalization.The result shows that the market-oriented reform of RMB exchange rate regime eliminates the expectation of unilateral and long-term appreciation of RMB and realizes two-way fluctuation,weakening the willingness of overseas RMB holders for speculative trading needs and promoting the formation of the two-way circulation mechanism of RMB investment and return.The real and effective increase of exchange rate of RMB will significantly improve the internationalization level of RMB,which indicates that when RMB appreciation occurs,the market is more willing to hold RMB assets to improve the internationalization level of RMB.And the pushing of market-oriented reform of RMB exchange rate regime is more conducive to the development of RMB internationalization than the capital opening policy.And then this paper analyses the impact of the market-oriented reform of RMB exchange rate regime on economic growth with the SV-TVP-VAR model.It is found that,from the perspective of stable macro-economic operation,the market-oriented reform of RMB exchange rate regime may amplify the uncertainty of economic operation in the short term（mainly on investment and government purchase）,but in the long run,the marketazation of exchange rate will make the exchange rate more truly reflect the supply-demand relationship of domestic and foreign currencies,avoid the distortion of the fixed exchange rate to the market price and improve the adaptability of economic entities to domestic and international market fluctuations,which is conducive to the stable operation of macro-economy,but it is still necessary to prevent the interference of market speculation on the real exchange rate.Finally,this paper puts forward the coordinated promotion of capital opening and independent monetary policy and the market-oriented reform of RMB exchange rate regime,as well as policy suggestions on improving the counter cyclical adjustment mechanism under the two-way fluctuation of RMB exchange rate. |
