International Short-term Capital Flows, With A Country's Exchange Rate Arrangement Choice

During the 1990s, with the increased improvement of financial liberalization and the integration of the world economy, international short-term capital movements have increasingly enlarged in scale, continuously fastened in speed, and have become the best active strength in current world economy. They have strongly influenced the allocation of the international finance resources around the world and have changed economic operational efficiency of each country, which has strengthened the volatility and uncertainty of the supply-and-demand relationship and prices signals of all kinds of financial transactions. International short-term capital movements have boosted both national economy and the global economy. However, they also have a negative impact on them. Especially as far as developing countries and the new market countries are concerned, the sudden reversal in direction of international short-term capital movements will lead to great loss. All of these can show there is a certain relationship between international short-term capital movements and financial crisis.On the other hand, the author taking the countries having broken out monetary crisis as examples, we can find out most of these countries adopt fixed exchange rate system. Both the first monetary crisis model and the second monetary crisis model take the fixed exchange as the assumption. It can show monetary crisis is related to exchange rate arrangement. The southeastern Asian financial crisis can explain the two kinds of relationships.Relying on stringent capital controls, China survived the southeastern Asian financial crisis. However, having entered WTO, our domestic financial market will eventually become much opener. The capital controls also are increasingly loosened, and the movements of the international capital especially the short-term one will have more influence on finance and economy in China. Although the conditions of the economic structure and macroeconomics are important, suitable Renminbi exchange rate arrangement will undoubtedly lighten the shock of the short-term capital movements. So a study on international short-term capital movements and exchange rate arrangement has become a very important project in the fields of international finance. The introduction reviews the theoretical and practical backgrounds of the dissertation, together with some well-defined terminologies as well. The dissertation is divided into three chapters. The first chapter describes the characteristics, the original cause and the effect of the international short-term capital movements. Since the 1990s, they have increasingly enlarged in scale, continuously fastened in speed, and have a closer relationship with domestic capital. Then the dissertation analyzes the causes of international short-term capital movements. At first it shows a survey of the determinants of international short-term capital movements. The flow theory assumes that a given interest rate differential will result in a continuous flow of capital from one country to another. The stock theory based on modern portfolio theory, however, argues that a change in the interest rate differential will only lead to an adjustment in portfolios of asset as a new stock equilibrium is established. The modern international capital assets theory makes a further study thereon subject to market imperfection and investor's heterogeneities. All these theories can give a sound explanation to the capital's flowing into emerging market economies in early 1990s. The modern monetary crisis theories explain the sudden large reversal of capital flows in late 1990s. Then the dissertation analyzes the effect of international short-term capital movements. As for the importer and the exporter of capital, even the world economy, the influence of international short-term capital movements is not only positive but also negative.Chapter Two makes a historical analysis on the relationship between international short-term capital movements and international exchange rate system from a...