The Stimulating Role Of Shanghai Free Trade Zone Construction In The Renminbi Capital Account Liberalization Process

Over the past thirty years, as the process of reform and opening up continuouslydeepens, our country has made outstanding achievements in the construction ofsocialism market economy with Chinese characteristics, such as in economic growthspeed and economic aggregate size. Behind the amazing fact that ranking in the secondplace in the world on economic growth rate, economic aggregate size and the volumeof trade, however, hides all kinds of problems, for example, RMB stays a rather lowinternational status, the economic growth heavily relies on the import and export, andthe overall size of foreign capital investment engages just a small proportion of thetotal investment because of the capital account control. With the official establishmentof Shanghai Free Trade Zone in September2013, our new state leaders take this as agreat opportunity to promote the convertibility of RMB under capital accounts andother reforming measures of monetary policy in both profundity and extensiveness. Wecan say that the construction of the free trade zone will play a leading role in theRMB’s convertibility under capital accounts in the expecting future. It can provideexperience of great value in realizing the general objective of RMB internalization.This paper starts from the standing point of free trade zone construction,integrating China’s unique national conditions with theoretical analysis related withcurrency internationalization, consulting a large amount of constructive references,applying the dialectical analysis method combining logic and history, the method ofwhole-part structured analysis, the method of analyzing the internal and externalcauses, and the method of quantitative and qualitative analyzing, it is creativelyexplored the stimulating role of free trade zone construction to the RMB capitalaccount liberalization on the current circumstances, development and the way of implementation.This paper is divided into seven chapters. The first chapter is the introduction.Firstly, paper introduced the background and significance of the topic, and then carriedout the research results nowadays of currency internationalization and RMBinternationalization in academic both in the domestic and overseas. It also outlined themethodology and research approaches used in this research. In the end, a briefdescription of the innovative points and shortcomings of this paper.The second chapter presented the concept of currency internationalization andrelated important theories, which served as the underground of our study. It includedthe theory of optimized currency zone, the theory of financial deepening, the theory ofcurrency crisis, the impossible triangle and the theory of currency settlement ininternational trades.The third chapter summarized the background and the current circumstance ofRMB capital account liberalization. First, it showed that based on the internationalbackground of RMB capital account liberalization, especially after the financial crisisin2008, now is the appropriate time for pushing RMB capital account liberalizationprocess forwards. Second, it revealed the current development circumstance of thisprocess with a detail analysis, which included the realization of RMB regular accountliberalization, the challenge and opportunity brought by entering WTO, the opening ofRMB trade settlement pilot scheme, the implement of the signed currency swapagreements and the development of RMB offshore market.The fourth chapter analyzed the conditions of implementing RMB capital accountliberalization. Combined with a retrospect of the opening history of US Dollar capitalaccount and Japanese Yen capital account, we can get the main conditions, whichincludes a stable macroeconomic environment, a appropriate exchange rate mechanism,a perfect supervision system and adequate fore reserves. Then, compared with ourcurrent situation, we pointed out that the initial domestic conditions for RMBinternationalization had been ready.The fifth chapter examined the stimulating role of FTZ construction in RMB capital account liberalization process. Based on a comparison with foreigninternational FTZ, we analyzed the relationship between FTZ and RMB capitalaccount liberalization, and the role it would play in interest rate liberalization andexchange rate marketization. In the end, we investigated the possible risk that may bebrought by FTZ construction.The sixth chapter made a further analysis and prospect of the liberalization pathfor RMB capital account.The seventh chapter summarized the whole paper. From various standing points,we can see the necessity and inevitability of RMB capital account liberalization. It isalso a complex systematic project, however, that cannot be accomplished overnight.We must take a gradual, moderate, and risk-controlled path.