The Reinterpretation And Reinstituting Of Financial Liberalization

The theories of financial liberalization were put forward in the 1970s, and became mature and put into practice in the 1980s. The theories of financial liberalization drew a lot of attention because of the unique perspectives and the powerful practical value, which have drawn a plenty of comments in the field of economic theories. Guided by the theories, the application of financial liberalization in some developing countries has been going at a large scale, which mixed the pleasure of economic growth and the bitter fruits of financial crises. After 30 years, dramatic changes have happened in global economic and political situations. With the continuous deepening of economic and financial integration, liberalization, as one of the tools for economic development, whose impact has become deeper and wider. The financial liberalization has become a most important part of the inner mechanism of the global economic and financial development. Actively or passively, developing countries must face and participate in the financial liberalization. China's financial system reform has been going for about 30 years, and in which the financial liberalization played a very important role. China's financial liberalization has its own outstanding characteristics, and has made great achievements, but there are many factors that have affected the effectiveness of the liberalization. The deepening of the financial system reform is the important task for China's"the 11th five-year plan", so whether it is successful or not concerns the success of the whole economic system reform. Therefore, how to recognize and comment on the theories of financial liberalization, how to put the theories into practice again in developing countries are key issues in front of us.Under this background, the paper chooses financial liberalization as the theme, following Chairman Mao Zedong's instructions in his works A Discussion on the Practice: Practice and recognize, then practice and recognize again. This way will recycle to the infinite, then recognition and practice will improve to the higher level than in the previous round. The paper focuses on the research of reinterpretation and reinstituting of financial liberalization on the basis of the initial recognition and practice of it. Through learning and comparison of the international experience, the paper aims to provide valuable suggestions for the successful advancing of financial liberalization for developing countries, especially for China.The paper consists of two parts, six chapters. Two parts are reinterpretation of financial liberalization and reinstituting of financial liberalization for developing countries. The first three chapters are the discussions on the reinterpretation of financial liberalization, and the 4th, 5th and 6th chapters are the research on the financial liberalization for developing countries.The 1st chapter summarizes the historical development of financial liberalization and the theories of financial development. Firstly, it clears up the preliminary documentations about financial development and liberalization, especially emphasizing the theories of J.G.Gurley, T.H.Patrick and R.W.Goldsmith. Then, the paper focuses on the theories of financial deepening of R.I.McKinnon and E.S.Shaw, commenting on McKinnon's Complementarity's Hypothesis and Shaw's debt-intermediation view. After that, the paper introduces the latest theories on financial liberalization in details. Lastly, it introduces the comments from domestic and foreign scholars on financial liberalization, laying a solid foundation for the later discussions.Guided by the financial theories of Marx, the 2nd Chapter reinterprets the financial liberalization from the perspective of the international political economics, pointing out the valuable points of financial liberalization as well as some points which are not well formed. Generally speaking, the valuable points of financial liberalization are as follows: first, it emphasizes the positive functions of financial activities. It is different from the conventional economic theories that ignore the functions of finance. The theories of financial liberalization emphasize the promotion of production and trade by financial activities, which fits the historical facts and coincide with the viewpoints of Marx. The second is about exchange rate theories. The financial liberationists think that the fixed exchange rate system is not feasible for developing countries. They support the flexible exchange rate system, claiming that the domestic economy can be managed through allowing the exchange rate to float, which was illustrated in the financial theories of Marx. There are five points that need more discussion and research. The first one is about the definition of social wealth. Shaw's debt-intermediation view tells that currencies are not wealth but the liabilities of the currency system. This viewpoint was actually inherited from the classical school, and it is opposed to the viewpoints of Marx. Marx thought legal certificates such as currencies, stocks, bonds and treasury bills are all social wealth. The current situation shows its correctness. The advocates'viewpoints that money is not wealth show that they are not clear about the relationship between social wealth and liabilities. The second point is about the interest rate. Mckinnon and Shaw agree to increase the nominal interest rate or lower the inflationary rate to enhance the real interest rate, hoping to increase the savings rate as well as the effectiveness of investment in order to enjoy the good results of multiplier effect. This is not correct. We all know that savings are determined by income and investments are determined by interest rates. Only by lowing the interest rate, can savings and investment compensate for each other. Marx thought that governments and economists should pay attention to how to increase national income rather than increasing savings, which is neglected by the advocates of financial liberalization. The third point is about discouraging borrowing money and being fund self-sufficient. Mckinnon thinks that developing countries should not over and persistently depend on foreign capital, and they must and should be able to be self-sufficient through financial liberalization. Marx thought people should gain wealth through what they have or what others have, otherwise they cannot get the wealth in the future. The roads of developed and developing countries all show that the viewpoints of Marx are correct. The developing countries lack fund that is a key element in the development of economy, and it is hard for them to accumulate fund and not to borrow from other countries. The fourth point is the negligence of political factors. The financial liberationists are talking about financial issues only from the economic perspective, neglecting political factors. International society is a mixture of politics and economy, so international finance is not only about pure economics, but also international political economics. The international political economics should not only study financial liberalization from the development of one nation's economy, but also regard it as an issue about national sovereignty. Countless practices of financial liberalization have shown that neglecting political factors is near-sighted and dangerous. The fifth point is neglecting the function of central banks'supervision and regulation. The financial liberationists praise the outcomes of financial liberalization greatly. They think that if without governments'intervention, carrying out the financial liberalization in developing countries can result in the rapid increase in the social wealth. They neglected the speculative phenomena and failed to emphasize the importance of financial supervision and regulation. Conversely, when Marx was illustrating the significance of finance to the economic development, he kept reminding people of possibilities of financial crises caused by financial speculative activities. Therefore he put great emphasis on central banks'supervision and regulation. The practice of financial liberalization in developing countries also testifies the significance of financial supervision and regulation.From the practical perspective and on the basis of practices of developing countries, the 3rd chapter reinterprets the financial liberalization through conducting the comparative cost-benefit analysis. The chapter first studies the background and process of financial liberalization for developing countries, analyzing the transmitting mechanism of how financial liberalization pushes economic growth, then discusses the inner relationship between financial development and economic growth on the basis of experimental research and international comparison, pointing out the positive impact of financial liberalization on the economic growth, then talks about the costs of financial liberalization, focusing on the financial crises in the course of liberalization, finally draws the conclusion from the comparative analysis of cost-benefit of the liberalization as follows: The financial liberalization in developing countries can promote the economic growth, but also tends to cause financial crises. From the previous experience, the economic losses exceed the cost to the great extent for developing countries. The financial liberalization is accelerating now, and in order to be involved in the global economy and strengthen the international competitiveness, developing countries must face the challenge.After having interpreted financial liberalization thoroughly, the paper moves on to the other topic---the reinstituting of financial liberalization in developing countries. The 4th chapter regards the developing countries as a whole to illustrate the principles of financial liberalization and some problems that call for attention. Firstly, it points out besides the existing systematic risks and the fragility of financial system embedded in developing countries, the over financial liberalization is the big mistake in some developing countries as well as direct cause for crises. In order to avoid over financial liberalization, the financial liberalization reform in developing countries should conform to the principles of taking initiative, being controllable and gradual. Finally, it points out the financial liberalization reform in developing countries must pay attention to some critical issues such as satisfying the initial conditions, arranging rationally the priority of reforms and protecting domestic financial industry appropriately.The 5th chapter has moved to China's financial liberalization. It reviews the historical practice, experience and obstacles of China's financial liberalization. From 1992, China's financial reforms, from different aspects, have helped to realize China's financial systematic transition from planned system to market system, from the closed system to open system. Comparing with other developing countries, China's financial liberalization is relatively successful, with its own outstanding characteristics and some wisdom that can be spread widely: first, China has a clear mind and anticipation of financial liberalization, which guarantees the use of active, positive and independent financial liberalized strategy. Second, China has dealt with relationship between the reform of financial liberalization, economic development and financial stabilization properly. Third, China has insisted on the market orientated financial liberalization reform, plus strong government intervention. Fourth, China has pushed the deepening financial liberalization reform to the great extent, focusing on the strategy of reforming gradually, accompanied by necessary breakthroughs. Some things must be pointed out: there are still existing some factors that affect the effectiveness of financial liberalization such as the accumulation of non-performed loans, asymmetry of reforms of financial sectors and other public sectors, financial fictiveness as the economy is more and more depending on currency, the monopoly of financial market and the difficulties of getting funds for private enterprises. All these problems are worth our attention. As the last chapter of the paper, the 6th chapter has put forward policy suggestions from the following aspects: the developmental background, preparations for necessary conditions and specific measures for the reinstituting of China's financial liberalization. It firstly analyzes the opportunities and challenges in the following couple of years that China will face in the process of its financial liberalization, then put forward the premises for China's reinstituting of financial liberalization, including establishing and maintaining sound macroeconomic environment, setting up cautious and effective financial supervision and regulation, the rationalization and improvement of individuals. Only under this condition, can the financial liberalization have good result. Lastly, the paper puts forward some specific suggestions on the reinstituting of China's financial liberalization in some key fields: as to interest rate marketization, besides the gradual advancing according to the set target and sequence of the reform, some matching measures should be taken in order to guarantee the smooth advancing of the reform and lower the risks. As to the opening of capital account, it is better to choose the gradual strategy, establish more flexible exchange rate system and interest rate system, improve the managerial framework of capital flows, strengthen the effectiveness of financial supervision and regulation, and actively participate in the regional currency cooperation.