Study On The Potential Risks And Countermeasures Of RMB Capital Project Opening

Capital account liberation is not just a central step in thecourse of currency internationalization, but a vital measurementof economic liberalization. As is indicated by internationalpractices, it could lead to the free flow of capital across nationalboundaries, the promotion of resource allocation efficiency，theinternationalization and standardization of financial system. Yetthere might also be negative consequences，for the liberation ofcapital account can influence a country’s macro-environment andfinancial market greatly, Without reasonable arrangement, thisprocess could even result in severe financial crisis.As the process of RMB capital account liberation speeds up,there is increasing talk about its potential risks and copingsolutions. This article regards this as the subject, explores thehistory, development status, potential risks and coping solutionsof RMB capital account liberation.Firstly, this article reviews the research ground of capitalaccount liberation, mainly including basic requirements, order ofopening and potential risks. Then it discusses the capital accountliberation cases of Japan, Latin America, India and Thailand,summarizes their experiences and lessons， investigates theimplications for RMB. The following section introduces thehistory and current status of RMB capital account liberation inthree aspects：Foreign investment, financial market-opening andexchange control. Referring to the seven categories,40sub-itemsdefined by IMF, this article suggests that85%of RMB capital account’s sub-items have been opened, leading to the conclusionthat RMB capital account liberation has reached a high level.Based on these analyses, five kinds of potential risks arepresented: capital flight, exchange-rate volatility, negative impactson macro-control and stability of banking system and latentfinancial crisis. We must confront the risks and crises, maximizethe benefits and minimize risks.Finally, this article advances corresponding suggestions: Thefirst is to determine ideal opening sequences, both the sequence ofRMB capital account liberation, marketization of exchange rateand interest rate liberation and the arrangement of sub-items.Besides, we should consummate overall risk-managementstrategy in six dimensions: tighten supervision over cross-bordercapital flows, boost marketization of exchange rate and interestrate liberation, strengthen robustness of banking system, enhancefinancial regulation system, establish risk pre-warning mechanismand intensify regional cooperation.