The Impact Analysis Of Capital Account Liberalization On Financial Security

The opening of capital account has been one of the problems in finance sector, which aretreated with caution and concern by all the countries in the world. Since the nineties, the world hasbroken out a lot of large-scale financial crisis, which makes people think about the connectionbetween the financial security and the capital account openness.Therefore, in the process of capitalaccount liberalization, the maintenance of the financial security has become the focus point in theeconomic field, not only in the academic area but also in the practical area. As a fast-growingcountry, China’s economy plays an important role in the global economy. To a certain extent, thesecurity of China’s economy will affect the world economy. And the core of the economy securityis the financial security. Because in the modern economic system, the finance takes key positionand financial security directly affects national economy safety. With financial internationalizationsweeping the globe, to adapt to the development of economy, China’s capital account liberalizationhas been put on the agenda. But in this process, how will the capital account openness influenceChina’s financial security? How much is the extent of the impact on financial security? Theseproblems are urgent to be solved and the researches are of great significances.On the basis of previous theory and research, this paper first defines the capital accountliberalization and the financial security. Whether the capital account liberalization does harm to thefinancial security or not, there is not a unified view from seeing domestic and foreign scholars’viewpoints. In view that the study on the adverse impact has more practical significance, this articlemakes a comprehensive discussion on the risk effects brought from capital account opening toChina’s financial security. This discussion expands from five aspects: the macro-economic security,bank security, securities market security, external security, and monetary security.However, the theoretical analysis of the impact of capital account liberalization of China’sfinancial security may not be sufficient. Therefore, this article uses empirical analysis to carry out adeeper research. In the process of empirical study, we select the flow index to measure the openingdegree of capital account. But there is not an authoritative conclusion on how to measure financialsecurity. So this paper constructs the index system of financial security, in whose process we use both AHP method and the entropy weight method. To study the quantitative relationship betweencapital account openness and the degree of financial safety, this paper constructs the co-integrationand error correction model. The results show that in the long term China’s capital accountliberalization and financial security showed a positive correlation. While in the short term thecurrent capital account openness had no significant effect on the financial security. Next, when theGranger causality test on two indicators is taken, we find that only after levels of financial securityincreasing would China choose to open capital account further.According to theoretical and empirical analysis, the last part in this paper first reviews china’sprocess of opening capital account, and then proposes policy recommendations on how to maintainfinancial security in response to the opening of capital account.