China's Foreign Exchange Reserves Decrease The Effectiveness Of Monetary Policy

Along with the opening of China's economics to the outside world, the domestic economy is becoming increasingly vulnerable to international factors.Excess liquidity and inflation increased pressure on China's economy in 2007,this problem has become one of the important issues,and it is a major problem faced by the central bank's monetary policy implementation.In order to contain the inflation,the central bank frequently used various monetary policy tools to intervene,but the results were not obvious.Although there are structural imbalances in the domestic economy,which can be the reasons of the higher CPI of 2007, but from the view of macroeconomic,the foreign exchange reserves is the most fundamental reason for the outstanding of excess liquidity and inflation.In the condition of open economic,foreign exchange reserves reflects a country's balance of payments,and the growth of foreign exchange reserves have an important impact on the country's monetary policy. According to the growth trend of China's current foreign exchange reserves,in a very long time,China's central bank will have to face the many negative impacts that result from the increase of foreign exchange reserves,how to deal with the flow of surplus,inflation and other issues will be an important task in the implementation of China's monetary policy.