The Research On The Impact Of International Capital Flows On The Effectiveness Of China’s Monetary Policy In The Process Of Internationalization Of The RMB

In recent years, with the sustained and rapid development of China’s nationaleconomy and the enhancement of comprehensive national strength, China’s openingto the outside world increasingly deepens, and the process of internationalization ofthe RMB is advancing. The RMB has exercised the International Monetary functionsin some areas and gradually steps on the stage of International Monetary. However,with the advance of the process of internationalization of the RMB, the size andfrequency of cross-border capital flows will increase. This means every change of themonetary policy by central bank have will lead to an impact on the capital marketswhich will counteract the effectiveness of monetary policy in China. Therefore, thestandard theoretical analysis and empirical analysis of the impact of internationalcapital flows on the effectiveness of China’s monetary policy in the process ofinternationalization of the RMB has important significance for the normaldevelopment of our economy and the macroeconomic internal and external balance.The paper begins with the development process of internationalization of the RMB,and analyzes the three periods of the internationalization of the RMB and other policychanges. Then, it analyzes the degree of RMB internationalization from theperspective of RMB as an international settlement currency, pricing currency, reservecurrency and so on. Based on this, the paper also discusses the structural changes ofcross-border capital movement:the proportion of Direct investment (FDI) decrease,the proportion of short capital increase,the channel of international capital becomediversified. All these theoretically demonstrated that the process ofinternationalization of the RMB would cause the change of China’s cross-bordercapital flows. In other word,with the advance of the process of internationalization ofthe RMB, China’s capital account and financial markets are experiencing a gradualopening up, which will lead to increasingly enlarge of the size,frequency,anddiversity of cross-border flows. In the empirical part of this article, the article firstanalyzes the influence of international capital flows on the effectiveness of monetarypolicy from the qualitative point of view, and then selects the short-term capital flows,foreign exchange rates, interest rates, money supply of each month between January2003to December2011to the empirical analysis to show that the correlation betweenthe flow of international capital and the effectiveness of monetary policy, and thus proves that cross-border capital flows will affect the effectiveness of monetary policyin China. Finally, the paper provides scientific and reasonable suggestions on how toeffectively alleviate the adverse impact of the cross-border movement of capital onChina’s monetary policy in the process of internationalization of the RMB.