Financial Reform Should Give Priority To Advancing Exchange Rate Marketization

Yi Gang, who attended the seminar on China's financial reform at Johns Hopkins University, said that China is currently promoting financial reforms such as exchange rate liberalization, interest rate liberalization and capital account convertibility.

He believes that China should first vigorously promote the marketization of exchange rate, enhance the flexibility of RMB exchange rate and achieve two-way fluctuation of exchange rate, and then cautiously push forward the marketization of interest rates step by step. At the same time, it will gradually promote the convertibility of some capital items.

　　 Yi Gang Emphasize, capital account Convertibility reform is a relatively long process. It cannot be accomplished overnight and should be carried out cautiously. He also pointed out that the Sino US interest rate spread led to the prevalence of the interest rate transactions in the US dollar and RMB.

Yi Gang said frankly that China's financial reform is subject to certain conditions. Taking the interest rate liberalization reform as an example, from the micro level, many enterprises and local government financing platforms lack the budgetary hard binding mechanism, are not sensitive to interest rates, and have not yet prepared for the marketization of interest rates. From a macro perspective, the current Chinese economy is facing some downward pressure. If the interest rate is fully liberalized now, short-term interest rates and rising financing costs will not be conducive to stabilizing economic growth.

For the recent Renminbi exchange rate Trend, Yi Gang believes that this is a normal market volatility. He said that compared with the main reserve currencies and the India rupee and Brazil Real and other emerging economies, the RMB exchange rate fluctuated very little, and the RMB exchange rate has depreciated only about 2% in recent years.

Considering that the Federal Reserve has withdrawn from quantitative easing policy, China's economic growth slowed down and China's trade deficit reached about US $23 billion in February, the recent depreciation of the RMB exchange rate is in line with market sentiment. He predicted that the RMB exchange rate flexibility will be further enhanced in the future, and two-way volatility will become the norm.

Yi Gang said that after some time, the outside world could see clearly that China is still sticking to the market-oriented reform of the RMB exchange rate formation mechanism, and China is expected to set up a deposit insurance system this year.