Analysis on the reform of the flexibility of RMB exchange rate

Based on Mundell-Fleming “The Impossible Trinity” theory, the interactions among Chinese monetary policy, exchange rate policy and capital flows were discussed.We proposed the necessity of the reform on increasing RMB exchange rate flexibility and analyzed the exchange rate prerequisites of monetary convertibility.This study raised some questions on monetary convertibility and the reform of increasing exchange rate flexibilty.We put forward that the reform should be conducted on the basis of the flexibility of all capital items.Also, this paper raises the problems relevant to the flexibility of exchange rate and proposes corresponding solutions to this reform.