HKEX's Chief China Economist’s Office has published a research report today looking at the international practice of macro-prudential management policies and suggesting several measures that could be adopted to enhance cross-border capital flow management as the onshore market continues to open via Bond Connect.文/香港交易及结算所有限公司首席中国经济学家办公室
HKEX's Chief China Economist’s Office has published a research report today looking at the international practice of macro-prudential management policies and suggesting several measures that could be adopted to enhance cross-border capital flow management as the onshore market continues to open via Bond Connect.
Macro-prudential management is the use of a series of macro-prudential indicators and taxation instruments to curb the accumulation of systemic risks and increase the stability of financial institutions within a country. These include increasing the capital adequacy ratio, loan-to-deposit ratio and loan-to-value ratio of foreign-currency liabilities, limiting net open positions in foreign exchange (FX), or restricting the ratio of foreign-currency collateralised loans.
The regulatory framework for international cross-border capital flows saw significant changes in the aftermath of the 2008 Global Financial Crisis. New regulatory policies and guidelines have been published by the International Monetary Fund, which have become important references for emerging markets to establishtheir own frameworks in the macro-prudential management of cross-border capital flows.
Since 2010, emerging markets like Brazil and Korea, which are relatively more open, are using these macro-prudential policies to address the large net inflow of funds resulting from post-crisis quantitative easing measures. However, few tools have been used to manage capital outflows.
In Mainland China, a macro-prudential regulatory framework has been gradually built up since 2015 to manage cross-border capital flows and enhance the smooth operation of its domestic financial market.
As a transparent and controllable closed-loop system, Bond Connect could work as a valve to modulate cross-border capital flows and help regulators proactively manage capital flows. In addition, it could help monitor the scale of foreign capital raised in corporate bonds issuance and enhance the effectiveness of macro-prudential management.
With reference to the IMF’s capital flow management principles, the Chief China Economist’s Office explorespotential measures that could be adopted in the process of opening up the Mainland bond market.
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