A Study On The Rule Of Law Strategies For The Loosening Of Foreign Exchange Control Under The Background Of RMB Internationalization

The internationalization of traditional sovereign national currencies has mostly revolved around the performance of monetary functions.Although the development path of the RMB internationalization differs from that of the US dollar,it must also revolve around fulfilling the currency’s internationalization function.Therefore,in order to continue the RMB internationalization,the first and foremost question is whether to deregulate the foreign exchange control.Whether summarizing the historical evolution of China’s foreign exchange control strategy or analyzing the latest requirements for foreign exchange control policy under the internationalization of the RMB,China’s position on foreign exchange control will be one of gradual liberalization.The deregulation of foreign exchange controls will expand the scope of international trade,reduce the cost of foreign exchange and capital entry and exit,and improve the efficiency of financial investment,thus creating favorable conditions for the internationalization of the RMB.Nevertheless,the value of the benefits generated by the deregulation of foreign exchange controls under the internationalization of the RMB can not conceal the real risks it poses.A sustained deregulation of the foreign exchange environment may rapidly attract international capital and trigger the hot money effect,which will in turn raise domestic asset prices and cause economic overheating.It may also have an impact on the exchange rate of the RMB and lead to instability in the value of the currency,resulting in the loss of foreign exchange reserves and a massive flight of domestic capital.It may even cause turbulence in the domestic financial market,aggravate international economic imbalances and trigger systemic financial risks,etc.These risks seem to be borne out by the failed experiences of many developing countries in the past,where the complete deregulation of foreign exchange controls caused currency crises in the pursuit of economic growth.This makes China’s current foreign exchange control strategy,both to try to deepen the pace of openness,but also to strictly control the risk.Influenced by the traditional thinking of gradual liberalization,China’s current foreign exchange control strategy still maintains a more cautious operating posture.The organizational content of foreign exchange control is mostly administrative regulations which are called window documents,and the form of foreign exchange control is mainly positive procedural control.The effect of foreign exchange control is more inclined to short-term risk response and prevention.The current foreign exchange control strategy in China is basically based on the implementation of the requirements of Foreign Exchange Control Regulations of the People’s Republic of China and a series of specific measures promulgated by other foreign exchange control bodies and institutions.These regulations aim at gradually widening the caliber of control,building the smooth channels required for the internationalization of the RMB,and adopting targeted policies or bans to hedge the current risks in the foreign exchange market.However,if it analyzes from the perspective of the internationalization of the RMB currency,the stable value of the RMB,and the prevention of long-term financial risks,it is easy to see that there are still many legal deficiencies in the current foreign exchange control strategy.In the performance of the securities market,the latest investment management measures of the SFC on QFII and RQFII have removed the number of restrictions on cross-border investment and also loosen the restrictions on capital remittance.However,in the textual provisions and practical scenarios of entry and exit settlement,the flow can only be executed after examination and approval in accordance with the documents of the measures promulgated by other remittance control entities such as the PBOC and the Foreign Exchange Bureau.This is obviously not conducive to the creation of legal conditions for the free flow of RMB into and out of the country.In the case of the overall low level of legislation on foreign exchange control,the current real-time adjustment of the provisions of the foreign exchange management methods can only work flexibly to deal with short-term risks.Due to the introduction and publication of the way are not as solid as the complete foreign exchange legal norms,it may make the overall investment environment presents the illusion of lack of stability,thus reducing the current expectations of the value of local currency investment in the RMB.Most of the funds that were originally planned to take root have also become "hot money" for "short-term entry and exit".Thus,the current foreign exchange control strategy does not reduce the risk of capital flight,and it may even become a hidden danger that exacerbates capital flight.By the same token,it is also likely to become a security risk that could trigger other financial risks.It is clear that the trend is towards the rule of law in foreign exchange control.The strategy for further relaxation of foreign exchange control under the internationalization of the RMB needs to be adjusted from the perspective of the rule of law in order to give full play to the role of the law in regulating,supporting and maintaining stability.To this end,this dissertation proposes the following ideas: First,flexible and effective policy responses should be established through the rule of law framework.This will enhance the transparency and stability of the implementation of foreign exchange control and avoid the adverse effects of the window-type administrative guidance system on the free exchange of RMB.Second,the adjustment path of the foreign exchange control law should be optimized.When revising the content of specific control measures,the path of relaxing foreign exchange controls should gradually shift from a ’positive list’ to a ’negative list’ based on the gradual reduction of the number of control measures and the liberalization of the scale of prior approval.It should focus more on post-event.Thirdly,it should deepen the current legal achievements of RMB internationalization.Around the currency swap agreement,expand the scope and foundation of cross-border trade,and rely on the advantages of the digital currency to consolidate and strengthen the legal protection of the RMB at the level of payment and settlement,so as to improve the rule of law path for the free use of the RMB,enhance the confidence of the international community in choosing RMB,and boost the process of RMB internationalization.