Mundell's impossible trinity
The following is a brief explanation of this impossible trinity:
The impossible trinity refers to an economy's monetary autonomy, exchange rate stability and free capital flow, one of which must be abandoned, and the three cannot have both.
Then, for example, China is a typical example of giving up the free flow of capital and implementing capital control in order to realize an independent monetary policy and a fixed exchange rate; In order to implement a fixed exchange rate and free movement of capital, Hong Kong gave up its independent monetary policy. The United States gave up the fixed exchange rate in order to implement an independent monetary policy and free capital flow.
Exchange rate and 8 1 1 exchange rate reform
First of all, exchange rate stability is easier to understand. 201before the exchange rate reform (8 1 1 exchange rate reform) implemented in August 5, the RMB exchange rate was pegged to the single dollar. 8 1 1 After the exchange rate reform, several major currencies were selected and given corresponding weights to form a currency basket. At the same time, based on market supply and demand, the change of RMB multilateral exchange rate index is calculated with reference to a basket of currencies, so as to keep the RMB exchange rate basically stable at a reasonable and balanced level. However, mentioning a basket doesn't mean staring at it. It also needs to take the relationship between market supply and demand as another important basis for the formation of a managed floating exchange rate system.
What is the government going to do after the exchange rate reform? As can be seen from this triangle, we just want to realize the independence of monetary policy and the free flow of capital. So, what does the independence of monetary policy and the free flow of capital mean? The independence of monetary policy refers to whether the central bank can formulate monetary policy, decide whether to issue or withdraw money, and adjust liquidity. For a super economy like China, monetary policy must be in its own hands. The free flow of capital means that foreign funds can come in and invest or withdraw at will. Then, with the needs of China's current industrial restructuring and opening up, the liberalization of the capital market is inevitable. Recently, we have seen some relaxation of capital controls, such as the recent opening of foreigners' accounts to the A-share market, and the announcement of the cancellation of the foreign shareholding ratio restrictions of banks and financial asset management companies; When the upper limit of foreign shareholding ratio of securities companies, fund management companies, futures companies and life insurance companies is relaxed to 5 1%, we can see that China's capital market is more open to the outside world, but on the one hand, it is introduced, but at present, we can see that the government's policy of going abroad for domestic capital is still conservative, especially since last year, domestic capital groups have been stopped from large-scale acquisition and acquisition of overseas projects, such as an airline. Therefore, at present, the government's control over domestic capital is still relatively strict. Of course, in addition to the investment made by large state-owned enterprises, large government funds and bank funds, such as Silk Road Fund and AIIB, all have different degrees of approval and stricter control.
Then, how to strictly control capital, on the one hand, takes into account the impact of the free flow of capital on China's economy, on the other hand, because of the lack of effective financial supervision means to supervise capital. It is mentioned in the penetration of the three characteristics of blockchain that blockchain is a penetration technology and a sharp weapon for financial supervision. The combination of financial market and blockchain is an inevitable trend in the future. Then, for the inflow of overseas capital and the outflow of domestic capital, with the help of blockchain technology, regulators can dynamically monitor the flow and flow of capital in real time, and gather the inflow and outflow of capital into a network. The so-called skynet is long, sparse and not leaking; In addition, the terms in the system design are included in the smart contract of blockchain. In case of abnormal inflow and outflow of funds, an alarm or early warning can be triggered in real time. Of course, whether complete penetrating supervision is necessary requires the advice of friends in the financial sector. However, using blockchain technology to regulate the flow of financial capital can greatly reduce the possibility of financial capital doing evil. Once it does evil, it can get to the bottom of it and punish the perpetrators.
On the other hand, the supervision of capital going abroad may be more difficult, and international cooperation and supervision need to be considered. Then at this time, it is necessary to break through the data islands between countries and establish a regulatory data sharing mechanism.
By establishing a regulatory system based on blockchain technology, we can see that it is possible to further realize the free flow of capital, a standardized capital market will be gradually formed, and a trust mechanism among all participants in the capital market will be established, which will help create a fairer international capital competition environment.
From the perspective of exchange rate changes, it mainly depends on the quality of the domestic economy, and of course there are external factors. Combined with the analysis of "blockchain and economic cycle", it is predicted that under the transformation of blockchain technology, the credit risk will be effectively controlled, and the macroeconomic fluctuation of a country will be weakened, so the corresponding exchange rate market fluctuation will be smaller.
Then, going back to the "impossible trinity" mentioned at the beginning of the article, with the help of blockchain, it is expected to further rewrite this classic theory, and "impossible trinity" will also become a "possible triangle" and further become a "reliable triangle" due to the stability characteristics of triangles.