| International capital flows have increased markedly in recent years, and for many countries capital movements have been a critical factor in the Balance of Payments. With the increase of capital flows, most countries gradually relaxed restrictions on capital market. By the end of 1994, all developed countries had totally opened their capital account. Meanwhile more and more developing countries began to lessen restrictions on capital account.The long-term objective of our foreign exchange reform is full convertibility of RMB and the ultimate objective is the internationalization of RMB. In December 1996, China realized convertibility under current accounts. As a result, convertibility under capital accounts becomes more and more important. In December 2001, China entered WTO, it will push forward the process of convertibility under capital account. Chapter One consists of the introduction and theories involved in the sequence of convertibility of capital account. Firstly, the meaning of capital account, convertibility of capital account and other relative concepts are explained. Secondly, the benefits and risks of convertibility of capital account are analyzed. The benefits of convertibility of capital account include: It will promote the specialization of financial services. It will simulate financial creation. It will improve the efficiency of savings transforming into investments. The inhabitants of a country can ensure the stability of his assets through a worldwide investment portfolio. It can popularize advanced technique and management expertise, etc. At the same time, we must see the risks of convertibility of capital account, which include: the macroeconomic unrest, the contradictions between monetary policy and fixed exchange rate, the difficulty to balance theinternational payment, the appreciation of real exchange rate weakening the power of competence of exporting department, etc.Chapter Two analyzes the internal and external causes that we open capital account. The internal causes include: we must internationalize the economy. We must adjust the structure of the economy. We must improve the economy. We must do business in other countries. External causes include: the efficiency of capital control is decreasing and the cost of capital control is increasing when we open current account and control capital account. Some international agreements have bonding forces on the transactions under capital account. Some international organization and countries bring pressure to our country, etc. We promote open policy, we must participate into the international division of labor and attract foreign capital. The more we promote open policy, the more we should open capital account. The convertibility of capital account is our choice when the economy develops to a certain stage, which the external causes only facilitate it.Chapter Three analyzes the preconditions of convertibility of capital account and gives some cases.The convertibility of capital account is the choice of a country when the economy develops to a certain stage, which is an important policy. But at the same time, it contains benefits and risks. When capital account liberalization is carried out in accordance with financial reform and macroeconomic reform, it will bring benefits to a country. Otherwise, it will bring risks to a country, even lead to economic and financial crisis. Government should carry it in accordance with the whole economic stratagem of the country. Government should arrange the policies in order to create the preconditions of convertibility.The success of capital account liberation have preconditions as follows. Economic preconditions include: the strong national power, the appropriate economic growth rate, prices retaining steady, fiscal balance,the current account balance, the healthy enterprises. Financial preconditions include: interest rate floating, flexible exchange rate, perfect bank organization, developed capital market, the rational use of macroeconomic policy, indirect monet... |
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