The Research On Currency Substitution In The Process Of Capital Account Liberalization Of China

Currency substitution is a mechanism of voting by foot in the foreign exchange market. As normal monetary fluctuation of an open economy, it may worsen in the process of capital account liberalization of China. From the international experience, large scale currency substitution has more disadvantages than advantages. China is a big developing and transforming country, large scale currency substitution will not only exert influence on the problem of monetary sovereignty, but also have great effect on the external and internal economic equilibrium.The dissertation firstly reviews the classic western theories about currency substitution, and makes adaptability analysis on the basis of brief appraisal. Next we analyze the representative worldwide currency substitution phenomena and get the corresponding revelations. We use different indicators to measure the degree of China's currency substitution at this stage, especially analyze the trend of China's currency substitution in the process of capital account liberalization, point out that currency substitution may worsen in the long-term process. On the basis of discussing the determining factors for China's currency substitution, we build VAR model, use cointegration test and then build VEC model to probe the dynamic relationship between China's currency substitution and its determining factors in the long term and short term. The empirical results show that GDP and RMB real effective exchange rate are significant variables to affect currency substitution; the difference of domestic and abroad nominal yield has paltry influence on currency substitution, while the rate of inflation is not the reasonable explanatory variable. The empirical results will provide effective referenced advice for guarding against large-scale currency substitution. In varying degrees, currency substitution can bring corresponding returns and risks, so we put forward specific suggestions for anti-substitution in accord with China's actual situations. From the macroscopic point, we need to maintain macroeconomic stability, push on the opening of capital account actively and steadily to avoid the negative effect of overquick financial liberalization; establish perfect financial market system and strengthen supervision. From the microscopic point, we need to maintain appropriate stability and flexibility of RMB exchange rate, eventually form a target area system of exchange rate, and we should prevent the outbreak of high inflation, improve the real return of RMB assets practically.