| Current world is an open world. Economic integration and financialintegration are the background for all the countries. In the 1950s-1960s,material economy was in the leading position; financial economy waslagging, and people's consuming structure was listed as "triangle" fromfinancial economy to material economy. However, in the 1970s-1980s,with the popularity of float exchange rate and the floating of capital,financial economy was in the leading position, and people's consumingstructure is listed as "reverse-triangle" from financial economy tomaterial economy. Currency substitution is appeared as a new problem ininternational field. Historical experience shows that currency substitution is inevitable inthe course of currency free exchange. Currency substitution can influencea country's economy in many aspects; serious currency substation canruin people's confidence to currency, disturb the financial order and evenevoke financial crisis. Currency substitution has certain presupposition hypotheses: thereduction of foreign exchange control, the decrease of transaction costsand international market integration. As for China, there exist thefollowing questions: Does currency substitution exist in present China?How about the extent,methods and reasons of currency substitution? Inthe further financial opening-up, what is the extent and the risk ofcurrency substitution? How should we deal with the risk? This article is composed of 4 parts: Chapter 1 makes overall introduction of basic conception and otherrelevant problems. Currency substitution means a behavior of changingthe kind of currency in the foreign exchange market. Currencysubstitution has certain presupposition hypotheses: the reduction offoreign exchange control, the decrease of transaction costs andinternational market integration. There are absolute indices and relativeindices for the extent of currency substitution; and the latter can reflect acountry's currency substitution extent well. Generally speaking, currencysubstitution is determined by factors of avoiding risks, adding income,speculation and so on. Considering China's special economic background,we only analyze its influence to monetary policy and financial policy.Currency substitution makes the measurement of money difficult; makesthe medial target of monetary policy uncertain; weakens theindependence of monetary policy. Currency substitution can increaseinflation rate, make the coin revenue eroding and financial fundingdifficult. Chapter 2 introduces several main western currency substitutiontheories and then analyzes their application in China. However, thesetheories have strict hypotheses which can not be met in China. And everytheory has its own limitation in its application to China. So we shouldmake some correction on the base of western currency substitutiontheories. Chapter 3 analyzes China's currency substitution problem in detail,including the economic background of currency substitution, the extentand methods of currency substitution. Intrinsically, currency substitutionreflects the changes of currency demand function in the open economy.There are the following factors influencing the currency demand function:real national income level, the interest rate difference, the expectation ofexchange rate changes, civil inflation rate and monetary policy risk andother risks. Positive test confirms that the most important determinantfactors of currency substitution is real national income level, theexpectation of exchange rate changes, civil inflation rate. Chapter 4 analyzes in the further financial opening-up, China'scurrency substitution extent may be increase because of instability ofmacroscopic economic expectation, exchange rate's fluctuation, people'ssensitivity to real income rate and the increasing selected assets. Currencysubstitution may bring risks to our monetary policy, financial policy andthe total financial system. First, we should treat currency substitutioncorrectly and quicken the research of its moderate extent. Second, for themonetary policy, w... |
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