Exchange Rate To Determine The Mechanism Of Action Of Factors And The Choice Of Monetary Policy

After the revolution of Foreign Exchange System in 1994, the RMB exchange rate changed to the "single" from the "double", namely changed to the administrated single floating exchange rate which is based on the demand of market from the passed one which is determined by the government and the one which is adjusted by the foreign exchange market. In 10 years of economic performance practice, the effectiveness of monetary policy transmission mechanism, monetary policy independence of China have faced a series of challenges, traditional monetary policy and the RMB exchange rate system combined with accessories have begun to demonstrate its own limitations. Since the second half-year of 2002, the foreign trade of China is on the situation of favorable balance at all times, many voices from the international societies demand the increase in value of RMB. After the estimation to the current economic situation, People's Bank of China release the bulletin in July, 2005, formally opened a prelude of the new round reform of the RMB exchange rate formation mechanism.This paper aims at the stabilization of RMB exchange rate, analyzing the determining theory to exchange rate level deeply. It also analyzes which Exchange Rate System is compatible to the situation of China and the monetary policy which is suited to the system by the numbers integrally, combining the real implement effect between RMB Exchange Rate System and monetary policy and the experience and indoctrinate of the monetary policy choosing from developed and developing countries. This paper analyzes the adaptation that monetary policy to the extent from the perspective of the RMB exchange rate formation mechanism;On the other hand, from the results of implementation of monetary policy it also analyzes its role in promoting the exchange rate system. For the former, this paper analyzes the cause of conflict within and outside balance firstly, and tries to find the way to achieve internal and external balance, namely the co-ordination of the monetary policy with other ones. For the latter, on the basis of the traditional decision theory on the exchange rate, combining the empirical analysis of the independence of monetary policy and the exchange rate system of Asian countries and regions, this paper expatiates the constrain which is inflicted by the current exchange rate system to the effectiveness of China monetary policy,subsequently putting forward the following proposals to resolve this contradiction.