The Study On Exchange-rate Regime, Capital Account Opening And Monetary Policy In China

Since China's opening and reform, central bank has adjusted macroeconomic running effectively by applying monetary policy and his ability of employing monetary instruments has been increasingly proficient. But in recent years, the effectiveness of the monetary policy has been reduced. Expanded policy failed to control deflation and tight policy by raising deposit reserve rate failed to restrain the trend of economic over-heat. Various factors can account for the situation. Exchange-rate regime and regulation of capital account are important among these factors.Economists of different countries have been arguing the relationship among exchange-rate regime, capital account opening and monetary policy for a long time. The opinions of Mundell and Krugman are representatives of these arguments. Based on these opinions, the article argues that exchange-rate regime and regulation of capital account have constrained the effectiveness of monetary policy by analyzing the rigid regime and regulating situation of capital account which is loose actually and strict namely. Further, the article points out that the reform of rigid exchange-rate system and adjustment of middle-target of monetary policy are indispensable to make monetary policy more effective in the background of opening capital account becoming main trend.