The Opennes Of Financial Market And Pricing Of RMB FX Rates

The ultimate goal of the RMB exchange rate reform is to realize the exchangerate decided by the market’s supply and demand. Because it make the exchange ratepolicy separate from the monetary policy, it gives the central bank more independencein making and carrying out the monetary policies.But at present, China’s foreign exchange market does not have the conditions ofpricing of RMB FX rates. Fist, the daily trading volume of China’s foreign exchangemarket is small, and the same time, the financial market which match with FX marketis not mature, especially the bond market. So, RMB lack the basis of the marketpricing. Another constraint factor is the openness of capital accounts in our country islow, the capital inflows and outflows still need to cross some regulatory barriers, andParticipants in foreign exchange market (supplier and provider) have not been fullythe cultivated and developed.The thesis starts with a description of China’s foreign exchange(FX) market byfocusing on its cross-border transactions, then goes on to discuss China’s financialmarket development from international perspectives, uses openness to the world asthe thread to link the two markets, and finally quantify the long-term relationshipbetween the openness of financial market and pricing of RMB FX rates by utilizingpanel data technique, empirical results have an important impact on the formation ofthe pricing of RMB FX rates.So our country should continue to develop and strengthen the financial market toimprove the market for international investors in the degree of openness, especiallythe bond market, and continue to promote the construction of CNH. We should createa good financial environment for FX market and orderly open the capital accounts,and finally achieved long-term goals that the RMB FX rates can be completelydetermined by the market.