Study On China's Foreign Exchange Sterilization

Since 1994, with the exception of 1998, the current account and capital and financial account of China's balance of payments have maintained trend of surplus, especially in 2001, after joining in the World Trade Organization, the surplus of balance of payments increased rapidly, along with the dual surplus is the surge of China's foreign exchange reserves ,by the end of 2008 , China's foreign exchange reserves have reached to 1.95 trillion U.S. dollars, which are about 38 times of 1994.Under China's exchange rate system, in order to maintain stability of exchange rate , the central bank need to buy foreign exchange reserves in the foreign exchange market at the same time put out basic currency in domestic market , so the high foreign exchange reserves will lead to a large number of foreign exchange share in base money, thus a direct impact on base money .The base money which is influenced by multiplier effect will lead to the surge of domestic money supply and the rise of prices. The rapid increase of foreign exchange also influence China's economic structure as well as the initiative of central bank which implement monetary policy .Although since the second half of 2008, as the result of the international financial crisis, China's import and export trade are attacked ,the increase of foreign exchange reserves is slow down ,but oriented by China's economic policy and limited by foreign exchange management system, the trade surplus and an increase in foreign exchange will continue for a short period of time, so the chapter 1 of this article introduce the basic theory of the foreign exchange and foreign exchange sterilization tools in detail. On this basis, the article analyse the necessity of foreign exchange sterilization and China's specific practice during these years, through the analysis of China's specific practice in different economic period , the article come to the conclusion: the foreign exchange sterilization and intervention of China's central bank make effect, the central bank can reasonably use the various of sterilization tools and tools portfolio for control and guide the external and internal of the economy, the operation in different stages can maintain two important economic indicators : exchange rate and price levels to reach a ideal state. However, sterilization tools of China's central bank are still have limitations, and the sterilization does not have the sustainability of the operation itself, it can influence the independence of central bank when the central bank implement its monetary policy , Therefore, in the last part of the article, face to the problem of sterilization, the author put forward in some suggestions about using the advantages of special treasury bonds and improving the sterilization tools,strengthening our country's foreign direct investment, as well as establishing the foreign exchange stablized fund...