Legal Means To Guard Against Financial Risks Of Capital Account Convertibility

With the furtherance of economic globalization and the greater influence of China to the global economic development, the internationalization process of RMB also draws much more attention from the whole world. The capital account convertibility is an important stage of the RMB internationalization process. But capital account convertibility also may cause potential financial risks to the domestic financial market. Currently in Chinese financial legal supervision system, the lack of a practical and effective way to protect the risk of abnormal cross-broader capital flow and to cut the loss of the financial risks leads to the result that the Chinese government is always cautious about the capital account convertibility process. This paper focuses on how to build a integrate legal system of market supervision and the loss relief in terms of the capital account convertibility.This paper consists of five chapters:The first chapter is a general introduction to the basic legal meaning and legal definition of capital account convertibility. And in this chapter the current Chinese financial supervision in terms of the capital account convertibility will also be mentioned, including the financial reform inside the Shanghai Free Trade Zone.The second chapter is the analysis of what risks the Chinese domestic financial market may encounter if the Chinese government rashly opens the capital account, including the risk of operation of the financial service institutions, financial supervision risk and the risk of abnormal cross-broader capital flow.The third chapter analyze the possibility and necessity to control the risks and to cut the loss with legal measures. This chapter will focus on the successful experience of other countries in terms of the controlling financial risks through legal reform, specifically, in the field of mixed business operation of financial institutions, the different approach to conduct the legal supervision, and to conduct temporary capital controls for the national economy safety.The forth chapter is a specific discussion of how to construct a new legal supervision system in terms of the risk control and risk supervision. It will include how to loosen the restrictions on the business scope of financial service institutions and how to conduct a principle-based legal supervision reform, which may be a way to solve the problems existed in the current legal supervision system.The fifth chapter is an analysis about how to rebuild the Chinese bankruptcy system for the financial service institutions and how to construct a legal system of temporary capital control. Both of them are important to the loss mitigation after the above discussed legal supervision system fails to prevent the financial risks of capital account convertibility from happening.