Currency In The Process Of The Internationalization Of The Financial Risk And Countermeasure Research

This thesis defines and analyzes the indicators that could impact the financialstability in the background of the opening of international capital and the emerging ofoffshore market. Moreover, this thesis analyzes the relation between theinternationalization of currency and the financial stability from the perspective ofmonetary policy failure, current-account imbalance, over valuation of exchange andcurrency speculation. What is more, this thesis discusses the method of reducinginternational currency risk from the perspective of the strategy of capital opening.Lastly, this thesis also discusses the risk minimization in the process of RMBinternationalization.The thesis includes7chapters. Chapter1reviews the literature. Chapters2to5analyzes the risk of currency internationalization. Chapters6discusses the riskminimization. Chapter7concludes the thesis and makes some suggestions. Chapter1reviews the prior research of currency internationalization, financial stability and theirrelationship. Moreover, it discusses the method of analyzing and defining the financialstability from the perspective of currency internationalization. Chapter2analyzes therelationship between currency internationalization and monetary policy failure. Thischapter distinguishes the effectiveness and independence of monetary policy, analyzesthe independence of monetary policy in the background of currencyinternationalization, and discusses the strategy of maintaining RMB’s independenceof monetary policy in its internationalization process. Chapter3examines thecurrent-account imbalance. Firstly, it analyzes the interaction of current-accountimbalance and currency internationalization, and discusses the Triffin Dilemma andthe Super Sovereign Currency. Secondly, it examines the impact that currencyinternationalization brings to current-account imbalance through financial modeling.Lastly, it examines the structured RMB output strategy of current-account in theprocess of RMB internationalization by analyzing the relationship between USD andU.S. balance of payments deficit. Chapter4examines the risk relating to currencyinternalization and over valuation. Firstly, it analyzes the relationship of exchangemovement and currency internationalization, discusses the issue of over valuation ofexchange and the choice of exchange rate regime. Secondly, it analyzes the impact of the nationalized policy of currency in Japan and German before discussing the similarissue of RMB. Chapter5examines the risk of monetary speculation. Firstly, itanalyzes the interaction of currency internationalization and monetary speculation.Secondly, it analyzes the major factor of monetary speculation under currencyinternationalization. Lastly, it discusses the regulatory strategy of hot money under theprocess of RMB internationalization by analyzing the case of the European monetarycrisis in1990’s. Chapter6discusses the impact that capital opening brings to all therisks above under the background of currency internationalization. Moreover, itdiscusses the capital opening strategy in the process of RMB internationalization byanalyzing the case of the Asian financial crisis. Chapter7contains the conclusion andsuggestion.The main purpose of this thesis is to demonstrate that although theinternationalization of RMB would enhance its role in the world and lower its FX risk,it will also bring challenge to our financial stability. In view of China’s economicscale, financial environment and the development of the regulatory system, theprocess of RMB internationalization should be gradual. In the early stage of RMBinternationalization, the capital market is not fully opened and the exchangefluctuation is relatively small. Therefore, the monetary policy failure risk, as well asthe monetary speculation risk remains at a relatively low level. Moreover, thecurrent-account could maintain surplus and the over valuation of exchange does notexist. However, with the increasing degree of RMB internationalization andinternational capital liberalization, the above risks would elevate. In order to minimizethe risk of RMB internationalization, China should open its capital market in anorderly way, increase the flexibility of its exchange policy, and coordinate relevantpolicies.