The Research On The Effectiveness Of Foreign Exchange Intervention By China's Central Bank

Since 1973 world monetary system has entered on a new era of floating exchange rate. The variable--exchange rate--has become a key factor in national economic system and central banks' intervention on foreign exchange market has become an international practice in countries worldwide. Central banks' interventions aim at preventing exchange rate from excessive fluctuation in the short term, and from imbalance in the long term. Moreover, exchange intervention can act as a part of monetary policy and work with other methods as a whole in regulation and control.This thesis analyzes the effectiveness of China's central bank's intervention in foreign exchange market. Starting with an overview of the basic theory on exchange intervention, it puts forward the purpose of central bank's intervention on exchange, and the criteria to identify the efficiency of exchange intervention, gives an account of various factors that influence the effectiveness of exchange intervention. Then, by reviewing the history of China's central bank's exchange intervention, building a math model for demonstration and proofing, summarizing and analyzing the practical effects of central bank's exc(?)ange intervention, it comes to a conclusion that the exchange intervention by People's Bank of China is effective under the circumstances that capital accounts in China are not fully opened yet, relatively strict capital controls are exist, a market-oriented interest rate regime is not formed yet, international payments on current and capital accounts are consecutive twin surpluses, not free floating Yuan, and the low substitution ratio of foreign assets for RMB assets. Finally, it provides some suggestions to improve and consummate the intervention on exchange market by China's central bank.Because the available research achievements concerning central banks' intervention in foreign exchange are rare, this thesis intents to integrate theory with practice, to explore some useful studies on the exchange intervention. Especially, in the background of the restructuring of RMB exchange rate forming regime, a discussion on central bank's intervention in exchange market in a systematical, lucubrated, and comprehensive way will be helpful to the future option of RMB exchange rate regime and to the improvement on the performance of central bank's intervention.