Research On The Interactive Relationship Between Short-term Capital Flows,RMB Internationalization And Exchange Rate

In order to integrate with the globalization of the world economy and the development of financial integration,China has accelerated the reform of financial liberalization and gradually promoted the opening up of the capital account.At the same time,it has also caused an increase in the scale of cross-border capital flows.RMB to join the SDR currency basket marks an important step forward for the internationalization of China's currency.The progress of internationalization of RMB needs to be based on strong economic strength,stable currency value and sound financial market.However,the high speculative,high-risk and easy-reversal characteristics of short-term capital can easily affect the exchange rate and financial markets.The existing research lacks the qualitative and quantitative studies that include the relationship between short-term capital flows,exchange rate fluctuations and currency internationalization in an analytical framework.Therefore,it is of great significance to study the law of interaction between short-term capital flow,RMB internationalization,exchange rate and its expectation from both theoretical and empirical aspects.In this paper,the structural vector autoregression(SVAR)model is used to empirically test the interaction direction and the degree of influence between the four variables,combing the conduction mechanism of the interaction between qualitative and quantitative aspects.The purpose of this paper is to promote the RMB internationalization,promote the reform of the exchange rate market and prevent short-term capital flow risks provide relevant decision-making thinking,and provide the basis for the formulation of relevant policies.In this paper,we first use the theoretical analysis and experience to summarize the interactive transmission mechanism between short-term capital flows,exchange rate,exchange rate expectations and the internationalization of RMB.Then we construct a structural vector autoregressive(SVAR)model to test the monthly data of four variables from July 2005 to October 2016.The results show that the exchange rate stability at a reasonable equilibrium level can promote the internationalization of money and reduce the scale and frequency of short-term capital flows;short-term capital flows impact the domestic financial markets,which is unfavorable for the stability of exchange rates and the internationalization of RMB;promoting the internationalization of the RMB forms the expectation of exchange rate appreciation and promoting two-way fluctuation of short-term capital,playing an active role in offsetting the devaluation of the exchange rate and short-term capital outflow.At the end of the article,the government will promote the internationalization of the RMB by combining policies with the market,deepen the reform of the exchange rate system,and improve the monitoring and early warning mechanism for short-term capital flows.