Dissertation > Economic > Fiscal, monetary > Finance, banking > China's financial,banking > Exchange rate,foreign financial relations

China 's exchange rate regime and the impact of interest rate marketization of RMB internationalization

Author HuZuo
Tutor ZhangYuQin;WangXueHong
School Yunnan University of Finance
Course Finance
CLC F832.6
Type Master's thesis
Year 2011
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One currency’s internationalization needs a developed domestic financial market and a reasonable exchange rate regime as support. Accelerating the process of RMB internationalization puts forward new requirements for current exchange rate regime in China and the domestic financial market. It’s very significant to research the exchange rate regime which formed on July 21, 2005 and interest rate marketability reform which is a further development of China’s financial market.The innovation of this paper is the comprehensive analysis how the interest rate marketability reform and exchange rate regime affect RMB Internationalization, and make policy proposal. Research technique unifies the theoretical analysis and the empirical analysis. First, analyze the current situation, second, analyze the impact on RMB internationalization, third, make policy proposal. The analysis result shows that both of the favorable factors for RMB internationalization is reducing the amount of international hot money inflowing and reducing the impact of international hot money inflowing on exchange rate stability. About the unfavorable factors, the liberalization of exchange controls cause hot money inflows and put RMB under the pressure of appreciation. Inflation caused by interest rate marketability reform will affect RMB ,and put monetary policy into dilemma. Moreover, poor linkage effect between interest rate and exchange rate at current stage limits the ability of monetary policy adjust exchange rate.According to what discussed above, this paper make policy proposal as follows: capital account should open orderly, make balanced management of inflow and outflow, made the exchange rate regime more flexible and make the market mechanism more vigorous, interest rate marketability reform should maintain progressive and take multi-level policy instruments. To the path of RMB internationalization, this paper suggests that RMB should first realize circulating in the surrounding areas then promote internationalization, and should first realize the circulation function then realize the reserve function.

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