A Study Of The Impact Of RMB's Convertibility Under Capital Account On China's Monetary Policy

In light of the fact that the global economy is heading towards a more integrated one and that international capital flow has gained great momentum, China has also quickened its pace of transforming from a closed economy to an open one, thus making remarkable progress in the convertibility of its currency under capital account. At the same time, an open economy has also brought such problems as imbalance between internal and external economy to China. Ever since adopting the reform and opening policy, China has chosen a stable exchange rate regime, a controlled capital account and the independent monetary policy as the package of policy in the open economy. But as the loosen of capital account control, the independency and effectiveness of its monetary policy will also be greatly affected. Meanwhile, China still faces the situation of long term dual-surplus of Balance of Payment, over-expansion of domestic credit, increasingly serious inflation and the risk of over-heating economy. Hence, the monetary policy is playing a more critical role in macro-economy adjustment. Therefore, when conducting macro economy control, to consider and analyze the impact from capital account liberalization on macro-control policies, especially monetary policy, so as to properly use the macro economic control measures to address the problems in national economy will be of great importance.The paper concentrated on the research of the impact from RMB convertibility under capital account on China's monetary policy. The paper consists of six chapters. Chapter One is an introduction, which briefly introduces the background, purpose, content and innovative point of this research. Chapter Two is a summarization of the researches conducted by foreign and domestic bachelors, which lays the groundwork for the research of this paper. Chapter Three did the fact analysis of the impact on the monetary policy from capital account liberalization by over viewing the progress, control measures of China's capital account liberalization as well as dilemma that China faces when using monetary policy. Chapter Four did the research on the impact from theory and empirical base. First, the paper did a detailed research on Mundell-Fleming model, then it established the theory model to study capital account liberalization's impact on China's monetary policy and did empirical test using the modern econometric method. Chapter Five conducted an in-depth research on the mechanism of the impact from four angles, that is, the transmission mechanism, the intermediate goals, the ultimate goals of monetary policy and the instruments of monetary policy. Chapter Six puts forward the suggestions on how to enhance the effectiveness and independence of China's monetary policy, mainly including trying to strike a balance between internal and external economy, carrying on capital account liberalization in a prudent and sequenced way, transforming the foreign exchange managing mechanism, improving the instruments of monetary policy, enhancing the co-working system between monetary policy and fiscal policy and improving finance market and financial instruments.