Study On The Effects Of The RMB Exchange Rate Volatility On China's Financial Stability

In August 2015,the People's Bank of China made a significant reform of middle price quotation of RMB exchange rate mechanism.The market-makers' quotation will refer to the previous session sight closing onshore foreign exchange rate,Since at this point,RMB exchange rate started to depreciate.At the end of 2016,the RMB against dollar has fallen by 13%.Accompanied by the RMB exchange rate floating range widening,interest rate marketization to further advance and gradually capital account's opening,the exchange rate fluctuations will be more intense and have unforeseen impact on China's financial stability.Therefore,studying the relation between financial stability and exchange rate volatility is necessary for China's current situation.This article first analyzes the action mechanism of exchange rate volatility on financial stability,including trade channel,channel of capital flows and asset price channel.On these bases,I made an empirical study of the RMB exchange rate volatility impact on China's financial stability.Conclusion show that the RMB exchange rate fluctuations does exist partly direct contact between financial stability.After joining other variables,their relationships become more clear.Namely,the RMB exchange rate fluctuation not only directly affect the financial stability in our country,and through trade channels,the channels of capital flows and asset prices channel can indirectly influence the financial stability of our country.Finally,policy suggestions are put forward based on the research conclusion.To maintain the basic goal of China's financial system stability,we can make improvement and perfection in the RMB exchange rate system reform,cross-border capital controls and monetary policy implementation.The first critical step is to further promote the reform of RMB exchange rate formation mechanism,.Then we need to formulate reasonable and controllable system arrangement to control cross-border capital especiallyshort-term abnormal flow of hot money.Last but not least,it's vital to accurately identify the source of the RMB exchange rate volatility factors to improve the pertinence and maneuverability of monetary policy.