A Study On Capital Control And Capital Account Convertibility Of RMB

To blend her economy more deeply with the world's economic tide and to be an important role indeed in world economy, China must meet the requirements of making Renminbi (RMB) a freely convertible currency under capital account and a global hard currency. This goal is a requirement of world's economic and financial globalization. Since the official announcement of acceptance of the Article No. 8 in the Agreements of International Monetary Fund (IMF) in November of 1996, China's monetary reform has basically entered into a stage in which RMB can be freely converted under current account. Next the enforcement of RMB's convertibility under capital account has become the only way towards its globalization and the crux of its globalization as well. With China's access to WTO and the deepening of financial system reforms, free convertibility of RMB under capital account has become an important issue we are facing. Lots of developing countries have discharged capital controls and accelerated capital account liberalization since 1970s. Yet financial crises of Latin American countries in 1980s, Mexico in the beginning of 1990s and Asian countries in the end of 1990s are all connected with deterioration of their capital accounts. All these urge us to consider how to balance capital control and capital account liberalization, which opening mode we should use and what countermeasures we should take. This dissertation begins from relative theories about capital control, reviews its history and realities and analyses its motivation and operating modes. Then it argues the effectiveness of capital control and studies relative theories of capital account liberalization. Based on the empirical analysis of capital account liberalization both in developed countries and developing ones, it finds that capital flight is the fatalist fuse of financial crises in developing countries. Beginning from relative theories about capital flight, it then mainly discusses motives, effectiveness and measuring methods of capital flight. The next this dissertation systematically reasons China's capital flight and at last demonstrates the strategies and tactics for us to follow in the further process of orderly advancing China's capital account liberalization. The conclusions of the dissertation are coming as follows: (1) With speeding of world's economy integration, the effectiveness of capital control keeps falling and trend of capital account liberalization is unstoppable. Capital control can only be used as an expedience in process of capital account liberalization. (2) The frangibility of domestic financial system and lasting deterioration of balance of payments are deep reasons for financial crises in developing countries, which are not key points in the dissertation with an eye to a lot of former research. The key conclusion here is that capital flight is the fatalist cause of financial crises and it interacts with those mentioned reasons. Thus it is worth discussing here. (3) Capital flight should be accurately divided into the "real" type and "transitional" one so that policy maker can stipulate relative policies respectively according to their characteristics and in nature decrease capital flight. (4) China's capital control to the capital flight is not so effective and sometimes it costs more and more, producing adverse results because of unitary administrative forces. We must basically hackle interest relationship between different main bodies and set up reasonable market orders so as to maintain stableness and development of our economy. (5) Synthetical method is more suitable to China's situation than direct and indirect ways in measurement. (6) China should now expand the enforcement of QFII and expedite practice of QDII to advance its capital account liberalization. Besides, we could gradually actualize such new forms of capital flow as RMB bonds issued by foreign institutions. (7) "Money laundering" is a very important channel for capital flight and it usually relates to corruption, state-owned capital drain, smuggling, drugs and gangsterdom, which influence capital account liberalization so much. So we should give it a close attention and a heavy blow. (8) "Underground banking system" is a vital way of "money laundering". The dissertation does not entirely deny its past and present positive functions so we must suppress its disadvantages and exert its advantages, strengthening management and striking unlawful deals as well.