While opening up can help improve financial sector's efficiency, it could also increase fluctuations. It’s important to maintain macroeconomic stability during the process of financial opening up, said Huang Yiping, Chairman of CF40 Academic Committee:
mp.weixin.qq.com/s/8z8vsLL5aDhe…
Financial opening up can even trigger #financialcrisis without proper management of fluctuations. The biggest problem many emerging economies face following financial opening-up is the sudden stop of capital flows, leading to deterioration in the national balance sheet.
Monetary policy,by making counter-cyclical adjustment, can help buffer the shock resulting from sudden stop of flow. Besides, as macro-prudential policy can further enhance stability, the two should be combined during financial opening up, the so called “two-pillar macro policy.”
In some cases, monetary policy and macro-prudential policy can have different effects, but the combination of these two can take effect and maintain the overall stability of the macroeconomy. #economics
Another factor that contributes to macroeconomic stability is the flexibility of exchange rate. This means that it’s necessary for #China to continue to transform yuan’s exchange rate mechanism into one with more flexibilities.
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