Study On The Effectiveness Of China's Monetary Sterilization Policy

Since 2000, the foreign reserve has increased sharply in our country, which influences the national money supply. The central bank of our country has to carry out the monetary sterilization. The purpose of monetary sterilization is to keep the stability of domestic money supply, achieve monetary policy target and insure the independence of China's monetary policy. Are these monetary sterilized instruments effective? It has always been a hot question which is concerned by the economists and the scholars at home and abroad. Now there are a few papers to discuss sterilizing by quantity analysis. Therefore reconsidering the intervention measures of foreign exchange market,seeking for some effective sterilized intervention measures to cut off the harmful effects on the monetary policy from the intervention is of significant meaning to our country.The research mainly includes four parts. First part is carried on theory analysis about monetary sterilization. First, we clarify the meaning of monetary sterilization on theory. Then, clarifying theoretical foundation and comparing the major sterilized instruments. Furthermore, study the main international theories about monetary sterilization.Second part reviews and analyzes the operation of the monetary sterilization conducted by our country's central bank in stages.Third part is empirical analysis on China's monetary sterilized instruments. First, explaining the criterion on effectiveness of sterilized instruments. Furthermore, testing on the effectiveness of China's monetary sterilized instruments. This thesis set up a theoretical model basing on Monetary Approach to Balance of Payment (MABP) and the Central Bank balance sheet, and then empirical tested the effectiveness of monetary sterilized instruments conducted by the Central Bank during September 2002 and December 2008. Based on the tests, it is concluded that the sterilization of central bank in china is effective.Finally according to the analysis, this paper gives some measures to advance the policy of monetary sterilization,including using various monetary policy tools flexibly,developing the treasury bill market and so on.