Research On The Effectiveness Of Foreign Exchange Sterilized Intervention In China's Opening Economy

With trade and capital flow globality, internal-external economic equilibrium becomes monetary authorities common challenge. Sterilized intervention has been an important policy instrument in practice. But its effectiveness is still controversial now.Since foreign exchange system reform in 1994 and constant capital inflow, our contry has also been in a dilemma of keeping RMB rate stable and internal economy balance. Is the sterilized intervention in China effective? And could it be durative in new open economy circumstance? These questions are the focuses in this thesis.this thesis analyzes the speciality of exchange rate mechanism in China, and then take a demonstration study on sterilized intervention effect. Results indicate that capital inflow bring on continued balance of payments surplus, and the People s Bank keeps RMB rate stable successfully by vast and direct intervention operations, which leads to the rapid increase of foreign reserve. The People s Bank also takes some sterilization operations. But data indicate that there is a large gap between the money supply by foreign intervention and money withdrawal by sterilization operations. The non-sterilized money becomes the main part of basic money supply, and even leads to remarkable internal-external economy conflicts.With further analysis, the reasons for conflicts are mainly based onfollowing points: Firstly, the people s Bank pays too much attention to the static rate stability, and the RMB rate loses the function of adjusting the balance of payments. Secondly, our country lacks market condition to bring the intervention s monetary channel, portfolio channel and signaling channel into effect. Meanwhile, the sterilized intervention attachs importance to monetary quantity adjustment, and neglect harmonizing different financial assets yields. So the capital yields often...