In Finance, What Is a Wide Opening?

Regarding the definition of financial openness, most scholars have defined financial openness mainly from the perspective of international capital flows and financial services, or in summary language. Jiang Boke (1999) believes that financial opening has both static and dynamic connotations: 1. From a static perspective, financial opening refers to the opening of the financial markets of a country (or region); 2. From a dynamic perspective, Financial opening refers to the process by which a country (or region) changes from a financially closed state to a financially open state. The definitions of financial liberalization by foreign scholars are more representative: Bekaert and Harvey believe that financial liberalization includes the following seven aspects: capital account opening, stock market opening, financial industry reform, state fund issuance, privatization, and free cross-border capital flow And the opening of international direct investment. Kaminsky et al. Believes that financial liberalization mainly includes capital account opening, stock market opening, and state fund issuance. Schmukler believes that financial liberalization mainly includes the opening of capital accounts, the opening of stock markets, and the opening of the domestic financial sector.

Financial opening

Financial Openness

Because the financial evaluation index system is a multi-level, multi-index system decision-making problem. Therefore, the measurement of financial openness is more suitable to use the Analytical Hierarchy Process (AHP). To this end, combined with the basic structure of the financial openness evaluation index system, the measurement steps and methods of financial openness will be given below:

1.

First, the policy selection steps of financial openness are not separated from each other, but are interconnected and cross-cutting. They are a unity and are domestic

(I) No conditions in the financial market

McKinnon, one of the authors of the "financial deepening" theory, proposed a four-step rule for financial opening: ^[1]

The first step is to balance the central government's finances and stabilize the macro economy. In order to avoid the domestic debt crisis and inflation, direct government spending should be limited and deficit finance should be reduced; an effective tax system should be established, fiscal revenue should be expanded, fiscal deficits be eliminated, and price levels should be stabilized.

The second step is to open the domestic capital market and relax restrictions on interest rates so that the real interest rate is positive. In order to minimize the possibility of bank panics and financial collapse, the currency and credit system must be hardened, long-term debt companies must be forced to repay debt, and credit flows must be strictly restricted until financial conditions are stabilized.

The third step is to promote the exchange rate liberalization. The free conversion of the current account should be much earlier than the free conversion of the capital account. First, the exchange rates of all current account transactions should be unified so that all import and export transactions can be conducted at the same effective exchange rate. Promote trade liberalization, properly formulate trade policies, gradually eliminate distorted quotas and other direct administrative controls, and replace them with moderate import tariffs or export subsidies, or open up several free zones that can freely enter the international market. Other regions have slowly expanded foreign exchange retention rights for export commodities.

The fourth step is to allow free movement of international capital. Only under the conditions that domestic banks operate freely, interest rates are determined by the market, and inflation is controlled is it beneficial to open the capital account, otherwise capital flight or accumulation of foreign debts will be caused, which will harm economic development.