China's Opening Economic Conditions, Foreign Exchange Policy And Monetary Policy Coordination

With the opening of economy in our country ,the regulation ofExchange Policy has play an more important role in our economy ,so theexterior factors will more and more influence in drawing and conductionof monetary policy inevitably. How to Coordinate With Exchange Policyand monetary policy will be an important question in theory andmacro-economic regulation section in the future. According to the theory of conflict in inside and outsideequilibrium and policy Coordination in fixed exchangesystem(J.Meade),the theory of quantity relation to policy instrument andobjective, Mundell-Fleming model, Coordination with Exchange Policyand monetary policy have three choices the first is floating exchangesystem , free flow of capital , independence of monetary policy. thesecond is fixed exchange system, free flow of capital and dependence ofmonetary policy,capital regulation ,the third is fixed exchange system,capital regulation and independence of monetary policy. There is only onechoice for government. The three policy profolio choices is fessible in theory ,but thedeveloping countries ,which have different economic and financialsituation, should take some important constraint in policy portfoliochoices . the first is whether domestic economy can endure disadvantageof floating rate system ,the second is how domestic currency can endurethe fluctuation of exchange rate ,the third is whether domestic economycan abandon monetary policy. So the developed countries or thedeveloping countries ,which have different constraint ,should make thechoice of portfolio of exchange policy and monetary policy according tobenefit and cost of different policy portfolio. There are success and failure on exchange and monetary policyCoordination in developing countries. In the financial crisis origin fromThailand , the opening of capital account provide flowing conveniencenot only for hot money but also for long term capital . When there aresome disadvantage to a country ,for example ,clear unbalance ineconomic structure and error in macro-economic policy ,the inflow oflong term capital may be catastrophic. In Argentina financial crisis , thereare disadvantage in currency bureau system. In this system , the issue ofdomestic currency depend on exchange reserve, so central bank shouldexchange foreign exchang acroding fixed exchange rate .From 1990s ,Chile strengthen financial supervision ,enlarge fluctuate range ofexchange andcarry out comparatively free trade and investment policy tounloosen the supervision of capital accounts gradually. The successfuldesign and operation in policy make Chile keep a good economicgrowing ,which can be called "the successful example" There exists "Mundell triangle" in Chinese exchange policy andmonetary policy .Stabilization of RMB nominal rate ,improvement onbalance of payments and low interest rate to stimulate demand haveconflict in some degree. maintenance of exchange stabilization willrestrict linkage between interest rate and exchange rate .Similarly, theobjective of exchange stabilization will make the policies which be use tomaintain interior economic equilibrium invalid .so in the three objectivesof opening capital accounts , fixed exchange rate system, independence ofmonetary policy , the choice of central bank is two at the same time ,notthree . In this background , china does useful research on foreignexchange policy and monetary policy .The first is current foreignexchange administion system strengthen the regulation of capitaloutflowing to maintain stabilization of exchange and independence ofmonetray policy. After carrying out RMB current item exchang ,realitychecking of business should be strengthen and regulation of capital itemshould be strict. The second is special arrangement and frequentinterveneing of exchange market impliment long term stabilization ofexchange and increase the trust from internation. The third is the using ofpolicy instrument such as rloaning ,opening market,settle interoreconomic impact from exterior economy. The fouth is improvement ofexchange administion system cr...