The Effect Of Capital And Financial Account Opening On China’s Monetary And Financial Environment

This paper was based on the following background, first was the globalization of Renminbi, second was China’s desire to deal with its large amount of foreign exchange reserve, third was China’s central bank showing the wish to promote the opening of capital and financial account, last but not least was the foundation of Shanghai Pilot Free Trade Zone, which has been focused on financial reform since its foundation. Then the question to settle was come up with, what will be the effect of opening capital and financial account on China’s financial and monetary environment? We answered this question from two aspects, one was to give the examples of countries which have already opened their capital and financial account. By summarizing their experience, we found that once capital and financial account was open, it would affect the country’s monetary environment through influencing the foreign exchange reserve. The other aspect was through empirical analysis. By analyzing how large was China’s foreign exchange reserve’s effect on money supply, we can tell to what extent the opening of capital and financial account will influence China’s financial and monetary environment. We’ve found that foreign was one of the factors influencing China’s money supply, but was not the most important one according to the empirical analysis. Then the author gave some advice on how to promote the opening of capital and financial account based on the cases of foreign countries and the empirical analysis.