| The central bank bill is a short-term debt instrument issued by central bank which purposes to regulate the commercial banks’excess reserves. China’s central bank bill includes two kinds, one of which for open market operations; and another for that of funds to supplement the financial institutions’lack of funds, which is known as special central bank bills in China. Special central bank bills in China mainly used to solve the non-performing loans of financial institutions in order to improve the quality of their assets. ICBC and other three State-owned joint-stock commercial banks get support from special central bank bills in their initial public offerings. This article focuses on what is used for open market operations of central bank bills, which is the definition of central bank bill’s category of this article.In1994, China’s foreign exchange constitution experienced a fundamental reform. The official market and decentralized market banned by a unity foreign exchange market.Since then RMB exchange rate began to go through a managed-floating exchange rate system. The international balance surplus since1994. Gradually international balance of payments developed into the current and capital surplus pattern, until2011double surplus expanded to$387.8billion. Double surplus brought a rising international reserves, combined with a managed-floating exchange rate system and foreign exchange settlement system, result a unprecedented pressure on sterilized intervention of People’s Bank of China. In order to achieve the objectives of monetary policy, central bank bills become a choice based on the reality. Central bank bills come up to our vision in2002, Sep as an innovative tool of open market operation. It came from People’s Bank of China convert the unexpired repurchase to his own short-term bonds. Central bank then proved this tool, a six-month central bank bills issued in2003, which have achieved good results in macro-control. Then People’s Bank of China pre-issued long-term central bank bills for the first time in2004and launched the triennial central bank bills of new varieties. Until2005, central bank bill was identified as a routine open market operation tool.Central bank bills are used to adjust the basic money supply, which could directly regulate the commercial banks available funds and excess reserves. The total liabilities of central bank do not change after Issuing central bank bills. But the structure of liability has changed. It can be said the essential of Issuing is to swap the central bank bills and commercial banks’excess reserves. Excess reserves, which are the basic tool of commercial banks used to money creation and credit expansion, can make a real multiplier effect.But we see, through the issuance of central bank bills, central bank can hold its liability scale, while simply by adjustment of the liability structure, to achieve the objectives of monetary policy and control the money supply. However, due to the characteristics of strong circulation of central bank bills, it also has considerable flexibility.After a normative analysis, we go ahead an empirical analysis. The author Select the not yet due central bank bills, narrow money supply and position for forex purchase using the VAR model for analysis. First of all, the reason for selecting the not yet due central bank bills central bank bills rather than the total issue amount lies on those could really helps to control the money supply and lock the liquidity.Second, China’s money supply is either an exogenous variable or endogenous variables has not been conclusive, but selected VAR model does not require make this assumptions. Thus the select the narrow money supply is feasible. Thirdly, central bank bills can directly effect on basic money, of which showed an obviously he linear relationship. While the impact factor of the broad money supply is too much that’s why the authors selected the narrow money supply as validation indicators. Finally, the hedge foreign exchange is the original intention of issuing central bank bills, and it can test the effect of central bank bills Johanse Cointegration test found three variables do exist relations. Granger causality test found that each increase of one percentage point of central bank bills will reduce0.45062percent of narrow money supply. Position for Forex Purchase is the Granger causes of central bank bills, which indicates that the original intention of central bank bills. Impulse response analysis showed that the central bank bills impact the narrow money supply mainly remained in short term, while long-term effect disappears. Central bank bills are used to adjust the basic money supply, which could directly regulate the commercial banks available funds and excess reserves. The total liabilities of central bank do not change after Issuing central bank bills. But the structure of liability has changed. It can be said the essential of Issuing is to swap the central bank bills and commercial banks’ excess reserves. Excess reserves, which are the basic tool of commercial banks used to money creation and credit expansion, can make a real multiplier effect.But we see, through the issuance of central bank bills, central bank can hold its liability scale, while simply by adjustment of the liability structure, to achieve the objectives of monetary policy and control the money supply. However, due to the characteristics of strong circulation of central bank bills, it also has considerable flexibility.After a normative analysis, we go ahead an empirical analysis. The author Select the not yet due central bank bills, narrow money supply and position for forex purchase using the VAR model for analysis. First of all, the reason for selecting the not yet due central bank bills central bank bills rather than the total issue amount lies on those could really helps to control the money supply and lock the liquidity.Second, China’s money supply is either an exogenous variable or endogenous variables has not been conclusive, but selected VAR model does not require make this assumptions. Thus the select the narrow money supply is feasible. Thirdly, central bank bills can directly effect on basic money, of which showed an obviously he linear relationship. While the impact factor of the broad money supply is too much that’s why the authors selected the narrow money supply as validation indicators. Finally, the hedge foreign exchange is the original intention of issuing central bank bills, and it can test the effect of central bank bills Johanse Cointegration test found three variables do exist relations. Granger causality test found that each increase of one percentage point of central bank bills will reduce0.46062percent of narrow money supply. Position for Forex Purchase is the Granger causes of central bank bills, which indicates that the original intention of central bank bills. Impulse response analysis showed that the central bank bills impact the narrow money supply mainly remained in short term, while long-term effect disappears.After affirmed the effectiveness of the sterilization operation, the author take a look in the cost and efficiency of central bank bills. The operating costs of central bank bills are raising while hedging efficiency is weaken, of which process is self-accelerated by its interest-bearing behavior. It sounds like a fairy tale if a central bank loss deficit, however, we should also be objective and calm to analyze the cost. Micro-financial costs of central bank bills is mainly reflected in interest payments and losses on foreign investment income, while macroeconomic costs primarily reflected on the loss of macro-economic operating efficiency due to precipitated a lot of money. After considering the cost and efficiency, I believe that the central bank bills should considered as a transitional short-term instruments, Although central bank bills is a practical choice in a particular historical period, it is not the only viable option. Taking into account possible changes in China’s foreign trade environment and the experience of developed countries, the monetary authorities should consider withdraw central bank bills timely while use short-term government bonds as a long-term choice.People’s Bank of China can obtain how much loss in sterilization operations? How long can Seigniorage income support a variety of interest payments? Where is the border of central bank bills scale? These issues still need follow-up. |
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