Currency Mismatch With The Effectiveness Of Monetary Policy

With China's continuing export-oriented economic development mode and its fast developing economy, the balance of international payments are experiencing an double surplus. Due to the soaring of foreign direct investment as well as China's absorption of foreign capital policy, large amount of foreign capital flow to China. From the point of balance of current account, China's goods and services are rising each year, lots of foreign currency flow into China and then follow a huge amount of foreign currency reserve. However, most of our foreign currency reserve is U.S. dollars, and the U.S dollars are losing value, so the whole reserve shrinks, which causes currency mismatch risk. The currency mismatch currency is important in this paper, and with more serious mismatch, it pose a threat to the economics and financial system in China. There are many negative effects concerning the currency mismatch to the whole economy. Especially the impact of currency mismatch to the monetary policy deserves our attention and research. In this paper, we conduct econometric analysis and prove there exists effect of currency mismatch to the product and price of monetary policy. According to the current situation of China's currency mismatch and develop trend, we make some relevant policy suggestion.