Study Of China's Foreign Exchange Problems

Since the reform of foreign exchange system was first carried out, the great surplus of export and the inflows of foreign capital cause the supply of foreign exchange exceed the demand. The official foreign exchange reserves grow quickly, and it has posed pressure on RMB appreciation. The peculiarity of China economy determining present exchange policy would not change the anticipation of RMB appreciation. In the other hand, the proportion of export in GDP is high, today is twenty-five percent, and the economy heavily relies on export. Changing the foreign exchange rate rashly must bring a lot of risks to the whole economy. Under fixed exchange system, due to the successive double favourable balance of both the current account and the capital account in balance of payment, in order to keep exchange rate stable, central bank was compelled to purchase foreign exchange, then the foreign exchange reserves grow quickly. At the same time, position for foreign exchange reserves in the base currency resulted from huge exchange reserves have been increasing greatly. The growth of foreign exchange reserves became the most important channel to put base currency into circulation.In order to minimize the loss caused by this conflict, China also needs foreign exchange sterilization policy. But what is the theoretic basis of foreign exchange sterilization policy? And what is the effect of foreign exchange sterilization policy? In what way should it be carried out? And how to improve our country's foreign exchange sterilization policy? The answer to these questions is just the object and purpose of my thesis. The main idea and structure of this thesis is arranged as following: first, from the perspective of analysis the reason for foreign exchange reserves influencing money supply, elaborates the influence of foreign exchange reserves to the economy conditions of our country; second, expounds the theoretical reasons and methods and effects of this sterilization; then explains the specification of foreign exchange sterilization policy; finally analyzes the reality requirement, current status, problems and future of our country's foreign exchange sterilization. In order to achieve this aim this thesis consists of 5 parts:The first chapter expounds the present conditions of the influence of the growth of foreign exchange reserves on money supply problem. This chapter firstly reviews the history of China's foreign exchange reserves and then analyzes its effects on foreign exchange share in base currency. After these analyses, this paper reveals some particularities of the influence of the growth of foreign exchange reserves on money supply problem of china, which include three aspects: 1.particularity of emerging reason: Since our country carried out capital control policy, the foreign exchange assets were concentrated to central bank excessively, then the proportion between central bank and residents holding foreign exchange assets was imbalance. The foreign exchange reserves expanded so rapidly, then the growth of foreign exchange reserves problem was more and more serious 2.particular influence on the money supply policy: the position of the base currency put into circulation through foreign exchange channel was too high, which weaken central bank's money control power; 3.particularity of the management of the position for foreign exchange in base currency: the position for foreign exchange in base currency was fluctuating with foreign exchange reserves, while the foreign exchange existed obviously fluctuation. As a result the management of foreign exchange reserves was difficult.Chapter two analyzes the influence foreign exchange reserves to our country's economy, which include four aspects: 1.influece on the base currency supply: The growth of foreign exchange reserves change the structure and the method of base currency supply; 2.influence on the industry structure, the export enterprises can easily acquire capital then other enterprises, so these enterprise have more superior development conditions; 3.i...