International Capital Flows And RMB Exchange Rate Reform

Since the second half of the20th century, developing countries’capital account liberalization has fostered the size of capital flows, and enhanced the liquidity. However, deficiencies in foreign exchange and domestic financial system made those developing countries the most vulnerable countries in the financial crisis. Constant breakouts of financial and monetary crisis let scholars realize that distorted incentives that exacerbate fragility of financial sectors tend to be more severe under a global context. After joining WTO, China’s capital account liberalization has been expedited, and global capitals go into China by various ways. Therefore, the article measures the openness of China’s capital account by methods of dummy variables and actual flows. Furthermore, the article empirically analyzes the variables that influence the long-term and short-term capital inflows respectively. From the analysis, RMB’s exchange rate is considered to be one of the most important factors. Thus, the proposal on the coordinated development between the openness of capital account and the reform of RMB exchange rate regime is argued at the end of this article.