A Study On The Impact Of RMB Exchange Rate Pricing Mechanism Reform On Monetary Policy Autonomy

On August 11, 2015, PBOC published The Announcement of The Reform of RMB Exchange Rate Formation Mechanism, reopening the reform of the central parity of RMB exchange rate pricing mechanism. After this new reform, daily central parity quotes should be based on the closing rate of the inter-bank foreign exchange rate market on the previous day, supply and demand in the market, and price movement of major currencies. It makes the RMB exchange rate take a big step forward in the direction of marketization.Theoretically, this reform will enhance the flexibility of the exchange rate and improve the monetary policy autonomy. This paper mainly studies the effect of reform on the monetary policy autonomy since July 2005. Firstly, from the perspective of history, this paper analysis the content, background and influence of the past RMB exchange rate pricing mechanism reform. And then, this paper studies the effect of the reform on RMB exchange rate pricing mechanism theoretically and empirically.After this study, I found that although the new reform expands the RMB exchange rate flexibility, China still won the strongest monetary policy autonomy between July, 2005 and August, 2015. The autonomy before 2005 was no better than that after the new reform. So the conflict between exchange rate policy and monetary policy should not rely on complete marketization of exchange rate. We should pay more attention to the economic law in the process of economic system reform and avoid subjective policy mistakes.