| Keeping national economy and finance safe and seeking the internaleconomy and external economy balance are the first goal of every country.The changes of interest rates and exchange rates play a vital role inachieving this goal. The interest rate policy is the basis of internaleconomic balance, while exchange rate policy is the key of externalbalance. The coordination between interest rate policy and exchange ratepolicy is the precondition in internal and external economic balance.China is accelerating the process of marketization of interest rates. Thecentral bank issued the "steadily promote the market-based interest ratereport" on January 31, 2005, which gave China's market-based reform ofinterest rates an overall strategic plan again. The People's Bank of Chinaannounced on July 21, 2005 adoption of a managed floating exchange rateregime based on market supply and demand with reference to a basket ofcurrencies and allowed the yuan to appreciate 2% against the dollar. Thisdecision indicated that China's exchange rate system reform and economicrestructuring are entering a new growth stage. With the acceleration ofinternational economic integration process and the opening of China'sfinancial market, China will eventually achieve a market-based interestrate and freely—float exchange rate. On one hand, this means that therelationship between interest rates and exchange rates will furtherstrengthen. On the other hand, it also shows the risk of external willinevitably attack our country. Therefore, we have to plan ahead andsteadily push forward the process of open and reform, and make use of thefinancial markets to set up a guard against the impact of the risk to avoidthe financial crisis occur.This paper used modern tools of economic analysis and illustrated theactual situation in China to research model of China's market-based interest rate reform and model of the exchange rate reform from the startof a mechanism of interest rate and exchange rate interaction and thenprovided the interest rate and exchange rate policy for the China'sopening economy. This paper is divided into four parts: the first partis foreword. It focuses on the acceleration of China' s market-basedinterest rate reform and the RMB exchange rate system and gives the maincontent and structure of this paper. The second part contains ChapterⅡ.It analyzes from a general overview, the interest rate parity model,Mundell-Flemming model and the central bank policy objectives torestrctrue one suited model for China's actual situation. The third partis ChapterⅢandⅣ. ChapterⅢanalyzes the current situation ofChina's interest rate policy and its market constraints from three angles.ChapterⅣstudies the status of the RMB exchange rate reform, reform trendand the potential risks. These two chapters provide a realistic basis forthe conclusion drawn back. PartⅣis ChapterⅤ. It offers a market-basedinterest rate and exchange rate policy options and the impact on theinterest rate and exchange rate interaction mechanism as well as providesthe interest rate and exchange rate interaction policy on open conditionsto prevent China from the impact of financial crisis.The main contribution is: First it analyzes the macro-environment andthe micro-foundation of Chinese interest rate policy and the exchange ratepolicy as well as the system restriction factor; Next it obtains from theinfluence of interest rate market to the interest rate-exchange ratelinkage mechanism and the influence of Renminbi exchange rate reform tothe interest rate-exchange rate linkage mechanism and establishes a guardof avoiding finance crisis。... |
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