China'S Capital Account Liberalization Can Not Be Haste.

A new report says China may be skeptical of capital account liberalization.

Drawing on the latest experience of other emerging countries, the report argues that China should take a careful and careful approach before exposing its economic risks to global capital flows.

The most common emerging economies in recent years, from Latin America to East Asia and central and Eastern Europe, are capital flows that will significantly strengthen the business cycle and the single biggest factor contributing to financial instability.

The domestic financial instability associated with liberalization will also have a significant impact on the economic performance of a country.

Most academic studies also believe that

and

Liberalization should be more cautious and accompanied by more stringent domestic financial regulatory measures.

In terms of capital flow, this means that keeping capital account supervision measures should be a necessary tool for macroeconomic policy.

In fact, in 1990s, China and India and other countries have made all developing countries understand the importance of gradually implementing capital account liberalization.

But in 1997, when the Asian financial crisis broke out and spread to Russia in the following year, and led to the outbreak of the financial and economic crisis in most developing countries, many countries really realized this.

The reason why China could remain aloof was to maintain strict capital account regulation.

Even the International Monetary Fund adopted a prudent strategy at the end of 2012.

The organization believes that capital account liberalization has advantages and disadvantages, so "liberalization needs careful planning, timetable, and gradual progress to ensure that its advantages outweigh its disadvantages".

In addition, the organization also believes that capital account supervision is part of a broader macro planning tool that should be freely implemented by the state in order to avoid economic and financial instability.

Considering that capital account instability is the most important Pro cyclical financial impact in emerging economies, regulation should be the main macro planning tool to combat this impact.

At the same time, these regulations should be complementary rather than substituted for other counter cyclical macroeconomic policies.

The IMF also recommends that such policies be given higher priority than other policies, while we suggest that these policies be implemented in parallel with the regulation of capital account.

Attention should be paid to speed.

It is not just emerging market countries that are at risk.

For a currency with increasing international demand, Japanese experience also provides a valuable lesson for the importance of prudently implementing capital account liberalization.

For a long time.

Japan only allows highly regulated financial intermediaries to manage capital flows, and thus effectively curbed the international application of its currency.

And when a capital tsunami seems to flood the entire economy, policymakers do not hesitate to try to contain these capital inflows.

In a sense, the same situation has occurred in Western Europe, and the liberalization of capital account is also a long-term process. The current account convertibility which began in 1958 was finally completed in 1990.

After two years of success, Western Europe's payment system suffered a crisis and led to a significant depreciation of the currencies of some countries.

The above example is not to suggest that the internationalization of RMB should not be implemented in the visible future.

Considering the importance of China in the global economy, the increasing share of Renminbi trading and investment seems inevitable. However, the Chinese authorities should manage this process step by step and select specific channels for carrying out the process.

In fact, China may be the most successful example of economic pformation in the past and in pragmatism.

Therefore, it should not be fooled by a policy that has led to the crumbling of numerous emerging economies, and eventually deviates from the process that has been experienced and tested.