After more than 20 years of reform and opening up, China's comprehensive national strength has been significantly enhanced, and its important position in the international economy has become more and more significant, laying a good foundation for realizing the free convertibility of RMB. China's economy is growing steadily and rapidly. The GDP increased from 7.2 trillion yuan in 1997 to 0.2 trillion yuan in 2002. At comparable prices, China's economy has grown at an average annual rate of 7.7% in the past five years. The stability of a country's currency depends on its economic strength, and the long-term stability of the RMB currency is based on stable economic growth. China's fiscal revenue increased from 865 1 0/billion yuan in197 to18910.40 billion yuan in197, with an average annual increase of 205.3 billion yuan. The substantial increase in fiscal revenue has enhanced the country's ability to macro-control the economy; China's foreign trade is expanding day by day, and its foreign economic exchanges are becoming more and more frequent. From 1997, China ranks 10th in the world in terms of import and export share. After five years' efforts from 1997 to 2002, China's import and export share has jumped to the fifth place in the world. The strong import and export situation and international investment status can directly promote the wide use of China currency in the world. China's foreign exchange reserves have reached a considerable scale. By the end of 2002, China's foreign exchange reserves had reached US$ 286.4 billion, ranking second in the world. According to the latest statistics, China's foreign exchange reserves have reached 300 billion US dollars. Not only that, residents have more than 80 billion dollars in foreign exchange reserves, and enterprises also have more than 80 billion dollars in foreign exchange reserves. Adequate foreign exchange reserves and a good growth trend are conducive to maintaining the credibility of the country and enterprises in international affairs, coping with emergencies, preventing and resolving international financial risks, and enhancing the financial macro-control ability of China's central bank. Rapid economic growth, favorable balance of payments, abundant foreign exchange reserves, stable financial policies and low prices have enhanced the international reputation of RMB. In border trade with neighboring countries and regions, RMB is widely used as hard currency for payment and settlement. Therefore, it can be said that RMB is already a regional freely convertible currency. With the further expansion and deepening of economic exchanges between China and neighboring countries and regions, the status of RMB will be further enhanced. At this stage, we must create more favorable conditions for the free convertibility of RMB. However, there are still some problems that make the RMB freely convertible not too fast.

(B) Analysis of the reasons why RMB should not be freely convertible too soon.

First, limited by its own strength, RMB will not become a hard currency in international payment in the short term. Because the geographical direction of China's foreign trade is relatively concentrated, the trade volume with the top ten countries and regions of China accounts for 70. 1% of the total foreign trade, and almost all of them are developed industrial countries and emerging industrial countries. According to the asymmetric rules of foreign exchange transactions, both sides will use a strong currency. Except Malaysia, the currency status of other countries and regions is higher than that of RMB. When our country deals with them, most of them can only be settled in the currency of the other country, which greatly limits the circulation scope of RMB. Therefore, China enterprises can't trade in local currency in international trade, can't pass on foreign exchange risks, and can't get the benefits of reducing foreign exchange risks. This kind of free exchange will only increase speculation, without any benefits.

Second, the supervision system is not perfect. Although China has liberalized its economic projects, it still implements the compulsory foreign exchange settlement and sale system and unified foreign exchange management, so the regulatory pressure is very small. Capital projects are gradually approved and planned by the state, and there is almost no need for supervision. Currency convertibility can not be solved by setting up a supervisory committee, but by establishing an overall system and a complete monitoring, early warning and response mechanism. This requires not only the ability of the central bank, but also the improvement of the relevant economic system of the whole society. The financial crisis in Southeast Asia is a good example. On the surface, this crisis was caused by the speculation of international hot money in the foreign exchange market and securities market, but in fact, it was due to the overheating of real estate in Southeast Asian countries, which produced a huge bubble economy, resulting in a completely overvalued exchange rate, thus making international hot money take advantage of it. The crux of the problem lies in the imperfect supervision system. Therefore, compared with the domestic situation, we can only say that the financial risk of RMB convertibility is huge now, which will only lead to a greater crisis.

Thirdly, it affects the effect of China's monetary policy. Once the RMB is freely convertible, the foreign debt management under China's capital account will also be liberalized, which will make it more difficult to implement monetary policy. For example, when domestic austerity policies are adopted to curb inflation and raise domestic interest rates, domestic banks and enterprises can easily obtain low-cost sources of funds from financial markets in other countries. At the same time, due to high domestic interest rates, international hot money will also flood in, weakening the effectiveness of austerity.

On the other hand, when the domestic interest rate is lowered to stimulate economic growth, domestic and international funds will flow to other countries because of the low interest rate, which will also make it difficult for monetary policy to achieve its goal. Moreover, an important issue is that the interest rate in China is still not marketized, and the result is even more irregular and unpredictable.

Fourth, the microeconomic foundation needs to be further strengthened. Whether the microeconomic foundation is healthy or not is related to the survival of domestic enterprises in the face of unprecedented horizontal competition pressure, and also to the asset quality of commercial banks closely related to it, thus affecting whether the free convertibility of capital projects can be promoted normally. Generally speaking, whether the microeconomic foundation is healthy has the following criteria: first, whether the enterprise sector has a modern corporate governance structure; Second, whether the enterprise can respond normally to price signals such as interest rate and exchange rate. However, the problems of unclear property rights of Chinese enterprises, serious government intervention, low self-accumulation rate and excessive dependence on bank credit funds have not been fundamentally solved.

Just like the bright future and bumpy road of China's reform and development, it can be predicted that there will be many difficulties and problems on the road of RMB convertibility. To achieve full convertibility of RMB, the sustained, stable and coordinated development of China's economy is the premise, and the convertibility of RMB should create conditions to advance steadily.