On Currency Substitution--Test And Policy Suggestions Under The Opening Of Capital Account

Under the open economy, Currency Substitution has great effect on one country's economy and finance situation. For example, the effectiveness and independence of government's monetary policy will be affected negatively, the basis of the government's tax collection will be weakened, the exchange rate of domestic currency will fluctuate frequently, the balance of payment of the country will result in deficit, and what is more, the process to make the domestic currency a convertible currency will be slowed down.It is clear that Currency Substitution will only occur when there are no restrictions imposed on the inflow and outflow of capital. Since China has many restrictions on it, Chinese Currency Substitution must be miner.Firstly, the paper observes our country's Currency Substitution phenomenon, draws the conclusion that our country's Currency Substitution is not serious, and analyzes Currency Substitution's influence factors.Typical of Currency Substitution is the monetary fluctuation of an open economy, so Capital Account must be studied when we analyze Currency Substitution, therefore its risk and profit are studied.In following sections, the paper emphasizes how to prevent the risk of Currency Substitution when Capital Account is open. The author quotes Guidotti's Inaction Band policy, according to this theory, the author puts forward some policy suggestions when capital account is gradually open.The final Chapter is conclusion.