Analysis On The Sterilized Intervention On The Exchange Rate In China

After the breakup of Breton Woods Regime, most countries choose floating exchange rate system instead of the fixed exchange rate system. But it not means the exchange rate can be decided by the market mechanism completely. Due to the key role the exchange rate plays in the economic development, most governments usually take measures to maintain the stability of their own exchange rate, which is called’intervention on the exchange rate’. This behavior makes it possible to achieve exchange rate aim, but also bring some new problems to the economic system. Because the main method of the intervention operation is to through the conversion between the domestic currency and the foreign currency, which means the governments buy the foreign currency in the exchange market using the domestic currency, and vice versa. Therefore, the intervention operation produced the huge foreign currency reservation and the expansionary effect of currency policy which may cause severe inflation and bubbles in the economic system. In order to avoid the inflation in the domestic market, the governments usually take efforts to sterilize the currency that put into the market due to the intervention operation.This paper choose the sterilized intervention on the exchange rate to be the theme of the research, analyzed the fundamental reason of the sterilized intervention operation in our country and established the logical framework of the whole process. Based on the above, this paper elaborated the measures our country took in different economic development stage. Moreover, using the data from1994to2011, this paper made the empirical research and estimated the sterilization coefficient, and makes some explanation to the result. At last, this paper put forward some suggestions to the future development of the sterilized intervention on the exchange rate.The paper elaborated the related theories and the conclusions drawn by some researcher. Meanwhile, The paper combined the experience and empirical research methods together, using actual history and estimated data to judge the effect the measures taken to sterilize the currency put by the intervention operation.