The Effection Of U.S. Quantitative Easing Monetary Policy For China

The international financial crisis since 2008 has made U.S. economy into a deep recession. In order to help U.S. economy out of crisis, Federal Reserve implemented two rounds of Quantitative Easing Monetary Policy to boost the US economy. But this has made the whole world into inflation, especially emerging economies including China. This paper studies the impacts of U.S. Quantitative Easing Monetary Policy to China based on the theory of endogenous money. U.S. Quantitative Easing Monetary Policy made a lot of money into China by trade surplus and short-term capital inflows. Those coming money caused the RMB counterpart of foreign exchange reserves increasing and monetary base a passive growth. This growth will automatically make more M2 by loan and deposits in Chinese monetary system. The results are inflation and assets price bubbles. That is a very serious thread to China’s economic development. So, reducing money supply has become an important task of China central bank. In this case, this paper suggests, the central bank should make the interest rate as the intermediate target of monetary policy transmission mechanism, and impact financial institutions, enterprises and individual’s choice, change their economic decision by the regulation of interest rates system. In addition, sterilizing policy is also necessary to resolve current crisis.