Study On The RMB Capital Account Convertibility And Financial Stability

The realization of the RMB convertibility under the capital account faces the internal and external demand which is the right trend of our economic development. But the convertibility reform is a complex and risky project, especially in its process and after its realization, and how to keep the financial stability has become the challenge for the countries in the world. Now there are some unstable elements in our financial system, therefore it is very important to study how to keep the financial stability in the process of the convertibility.Firstly the paper studies the impact of the convertibility under the capital account on the financial stability and introduces the risk and the experience in other countries' process in the convertibility under the capital account. It provides the suggestion for the RMB convertibility under the capital account. The paper analyses the unstable elements in the financial system from the aspects in the banking system, the financial market, the financial asset price stability, the financial supervision, the macro-control efficiency and the market micro-economic entity situation. The paper suggests the process for the convertibility which needs 3 to 5 years. In the first stage it is to consider the trade and investment facility, to release the control on the shares, bonds, derivatives, and the paper details the timetable, the reform key points and the suggestions in the risk prevention. In the second stage it is to manage the capital market securities trading, bond issue, the non-residents investment, the individual capital transfer, the derivatives and the convertibility between the local currency and the other currencies. After that RMB under the capital account has basically become convertible and the market is open both inside and outside in the capital market. Obviously the control on the flow and the convertibility of the capital is released, hence the increase of the hidden risk which can easily cause the unstable situation and sometimes even crises in the financial system. On this stage of the reform, it is hard to put forward the right measures for risk control, the only way is to lift the ability to keep the financial stability and to control the risk. Finally the paper puts forward the detailed suggestions on how to keep the stability in the financial system from the aspects in the commercial banking system reform, financial market development, the establishment of prudent financial supervision, the liberalization in the interest and exchange rates, the prevention of the asset bubbles, the enforcement in monitoring and pre-warning system, the maintenance in macro-economic stability and the improvement in the competitive edge in the micro-economic entity.