The Opening Of The China's Capital Account In The Frame Of The Extended Triangle

Attracting foreign direct investments, while strictly controlling the flow of other foreign capital, is the main feature of the opening of the China's capital account at present. It brings great surplus to China's balance of payments. Great surplus is an important premise for China to keep RMB exchange rate stable. But the great influx of foreign capital will hamper central bank to execute currency policy independently. It is fortunate that the prices have kept going down in these years in china, so the increase of the currency brought by the foreign capital has not done great harm to the economy in China. But from 2003, the harm has become greater and greater with the rapid increase of the currency supply. With China's capital account opening more and more, keeping currency policy independent and adopting more flexible exchange rate institution is the only reasonable policy combination according to Mundel's trilemma.