A Study On The Convertible Strategy Of Capital Project

Since the global financial crisis in 2008,large-scale cross-border capital flows caused a huge impact on developing countries’ economy, a growing number of counties joined the restoration or strengthening of capital control, even the IMF admit that those countries which control the cross-border capital flows are the least affected countries during the global financial crisis. Capital account liberalization is a double-edged sword, it can promote the worldwide capital optimal allocation, but will also cause adverse effects on host countries’ international balance of payments, financial Stability and national economy without adequate supervision, so promoting capital account liberalization must be carried out very carefully. Capital account liberalization is a long-term process, the capital account liberalization path is different if conditions or backgrounds is different. This paper describes the course of South Korea and Japan capital account liberalization, and the enlightenment to RMB capital account liberalization. At present, China’s interest rate and exchange rate formation mechanism is not fully market-oriented, the space for arbitrage and arbitrage is exist, so the strategic opportunities to promote capital account liberalization has not come. But with the implementation of current account liberalization, the costs of capital control are increasing, and the benefits are falling, so capital account liberalization will be the trend. So china can promote RMB capital account liberalization in Shanghai FTZ at first, to accumulate experience in promoting RMB capital account liberalization across the country. Based on the interest rate parity theory and capital account liberalization compromise model, this paper discuss the strategies to achieve RMB capital account liberalization in Shanghai FTZ. This paper divides the RMB foreign exchange market into three intervals: capital free flow zone, government intervention zone and crisis zone. Combined with the "account management system", "RMB cross-border payment system" and other relevant policies, we can expand the safe and effective RMB capital account liberalization from four aspects: increasing the foreign exchange market supply elasticity(ξ), expanding the size of transactions in foreign exchange markets(Q), gradually relaxing the volatility of RMB exchange rate and interest rates, reducing the foreign exchange market transaction costs(τ).But the government should regulate the market activities beyond capital free flow zone, that is to say we should promote capital account liberalization and retain the measures to control capital flow at the same time, we should promote capital account liberalization cautiously and Progressively.