A Study On The Coordination Of Exchange Rate System And Monetary Policy

The opening degree of China's economy becomes higher increasingly. The surplus of balance of payments surplus is growing persistently. While huge foreign exchange surplus demonstrates that there is internal unbalance and external unbalance in China's economy. The rapid growth of foreign exchange reserves brings great pressure to appreciation of RMB, which challenges monetary policies severely. Therefore, studying the coordination of the monetary policy and exchange rate system has very important theoretic and practical meaning to the sustainable development of China's economy.Some theories about coordination are introduced, including Meade's Conflict, Mundell-Flemming Model and Krugman Trilemma. The relationship between different choice of exchange rate system and effectiveness of monetary policy is analyzed. This thesis focuses on the reason for the conflict between them since 2005. It deems that the reason which causes this conflict lies mainly in the increase of the foreign exchange reserve. RMB revaluation and inflation coexist in China. Some suggestions for coordination between exchange rate system and monetary policy are presented. The monetary policy should control the inflation in the long-term and prevent the foam of assets prices in the short term. It's better to cooperate with financial policy. The foreign currency and capital market should be perfected in order to promote the sustainable and stable development of the economy and finance of our country.