Research on the Problems and Solutions of China's Foreign Exchange Market

This study delves into the intricate dynamics of China's foreign exchange (FX) market, emphasizing its essential role in the global financial ecosystem and China's economic architecture. Recognizing the FX market's critical importance, the Chinese government has carefully managed its transaction from a tightly controlled system to one progressively influenced by market forces since its foundation in the early 1990s. Despite significant advancements, the RMB FX market confronts challenges including limited responsiveness of the RMB exchange rate to market demands, capital flow restrictions, and external vulnerabilities, especially the impact of U.S. monetary policies and global economic uncertainties. Through comprehensive analysis, this research identifies these core issues and proposes targeted strategies for addressing them, such as gradual liberalization of the exchange rate mechanism, enhancing the openness of capital accounts, and promoting RMB internationalization. These solutions aim not only to address the current challenges but also to strengthen RMB FX market against future external shocks, contributing to its stability and integration into the global financial system. This thesis offers valuable insights for policymakers and stakeholders, guiding endeavors to enhance the functionality and adaptability of China’s foreign exchange market in the face of changing national and global landscapes.