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Expert: 3 Conditions Needed for Free Convertibility of RMB
Prof. Wang Xinkui with the Shanghai Foreign Trade Institute said at the "2000 Forum on Economic Globalization" that three conditions are needed for realizing the free convertibility of the RMB under capital account, namely, commercialization of banks and marketization of the interest rate; and modernization of the enterprise system and modernization of the macroeconomic control system.
He said that in the first condition, it's one of the necessary conditions for the free convertibility of the RMB under the capital account to marketize capital price (interest rate) because this is the major problem to be confronted in such a process. Without the marketization of interest rate, if free conversion of the RMB is conducted under the circumstance of a twisted rate, it will inevitably cause arbitrage and speculation, and even financial crisis.
Under the circumstance of the free exchange of the RMB under the capital account, the fluctuation of the exchange rate and interest rate will make the enterprise-operating market environment more competitive, so the modernization of the enterprise system is a must. The basic requirement of the enterprise system reform is to raise the ability of enterprises to react to the change of interest and exchange rates and to adjust output, production scale and the product mix.
He said that the basic target set in the third condition is to maintain the consistence between internal and external balance of the national economy.
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