The Influence Of Increasing Foreign Exchange Reserves To Monetary Policy In China

From the 20th century, China's macro-control mode getting from direct to indirect mode, and the role of monetary policy will become increasingly important, but the effectiveness of monetary policy in process of monetary policy has been discussed in academic circles focus. The context of economic globalization has caused tremendous shock to the monetary policy in our country, such as the massive influx of short-term capital and the huge trade surplus. As foreign exchange settlement system and to maintain exchange rate stability, the Central Bank put a lot of base money in the market, and the foreign exchange sterilization increase of money supply. The increase of money supply increase our liquidity, resulting in rising prices, increasing inflationary pressure and also some impact on other macroeconomic variables. The effectiveness and independence of monetary policy has been weakening.This paper first elaborates on the mechanism between foreign exchange reserves and the monetary policy based on domestic and international research results, elaborate the impact of foreign exchange reserves on the general mechanism of monetary policy. And from both normative and empirical point of view discussion of the impact of foreign exchange reserves on monetary policy. Exchange rate reform in 2005 as a dividing point, study the impact of foreign exchange reserves to the effectiveness of monetary policy in the Two-stage. And the conclusion is: the foreign exchange reserves are still growing rapidly, the current account balance began to reduce; foreign exchange reserves are the granger causes of the M1 and has some effect on the inflation; Compared the two-stage exchange reform, lack of the central bank hedging measures reduce the effectiveness of monetary policy. In view of these conclusions, we also present some corresponding measures to strengthen the effectiveness of monetary policy.