From Foreign Exchange Reserves, The Impact On The Significance Of The Reform Of Rmb Exchange Rate System, The Money Supply

The reform of foreign exchange system was first carried out in 1994. The main contents were: with the capital control policy carried on, to execute the compelling foreign exchange selling to and buying from the appointed foreign exchange banks in a wider extension and the foreign exchange market among banks was built up. These series of reform meant that the elementary managed floating rate system of RMB which was based on the market was set up. However, in fact, the system was not circulating in the way it should be, especially after the Asian Finance Crisis. The system turned to be simply sticking to the US dollar and the fluctuation was too narrow. Substantially the RMB rate system was still traditional fixed pegged one.During the twelve years since 1994, the balance of payments in China has persisting"double-surplus"except the year 1998. By this situation, the demand for RMB has been increased more and quicker in these years. Additionally, with several times of interest dropping of the US dollar, RMB began to depreciate to other foreign currencies. Then it turned to push the surplus of the balance of payments in our country higher again. In this way, the appreciation pressure of RMB has become more and more strong. To stabilize the rate of RMB, the People's Bank of China had to increase the demand of foreign exchange by buying other countries'money, while this made the foreign exchange reserves in China expanded larger and larger. Since 2000, the expanding speed became especially fast. In the end of 2004, the foreign exchange reserves in China was 6099.32 hundred million dollars and to the end of 2005, it came to 8188.72 hundred million dollars.Large foreign exchange reserves has benefited to the economy...