A Research On The Result Of China's Foreign Exchange Sterilization Through The Open Market Operations

Since 1996 China began the open market operations, open market transaction as an important mean to controlling the liquidity of the monetary market, has been playing a very significant role for our economic stability and development. Especially since 2002, as the dollar devaluation, RMB appreciation pressure has been increasing gradually. A large amount of foreign capital inflowed, and China's foreign exchange reserves has been obtaining fast development. Up to December 2009, foreign exchange reserves had reached 23991.52 billion dollars. Since then, the open market operations gradually became the main mean for China's monetary authorities to hedge foreign exchange and reduce the liquidity wave of financial institutions. It has played an important role for the economic fluctuation and the adjusting of the market liquidity. At present, the research on open market operations increases gradually in China, and because of the different research methods and research angles, the conclusion is different. Based on the related research of other scholars ,this paper try to do a research on the development of the open market operations in China since 1996 and the result of foreign exchange sterilization, to make a comparative research and careful combing, combining the theory and empirical and try to propose some corresponding policy suggestions.This paper firstly makes a combing to the foreign exchange sterilization and open market operations related theory, a summary for domestic and foreign research situation.On this basis, it tries to make a more thorough and phases study on China's open market operations from 1996 to 2008. Overall, it is divided into three stages: 1996-1998 is the stage of China tried to use open market operations; 1999-2002 is the stage of open market operations began to be the method of foreign exchange sterilization; and 2003-2008 is the stage of open market operations had become the main method of foreign exchange sterilization. Especially I made a deep analysis for the effectiveness of foreign exchange sterilization, come to a conclusion: Through the open market operations in regulating monetary supply has certain effect, but the effect of foreign exchange sterilization isn't very good, the average annual rate of exchange sterilization is only 43.7%.Then I analyzed the reason of the bad result of the foreign exchange sterilization through the open market operations. I try to turn out that the big pressure of foreign exchange sterilization, the defects of foreign exchange sterilization through open market operations and China's open market operations overly dependent on the central bank bills are the main reasons.Finally, the paper puts forward the relevant suggestions and personal opinion on increasing the foreign exchange sterilization. China should carry on the reform of foreign exchange rate system, strengthen the open market operations and other means of foreign exchange sterilization and build a multiple open market operation system in which the national debt is the main tool.