Research On Chinese Foreign Exchange Market Pressure

Since the exchange rate mergered in1994, China’s international trade has been showing a pattern in double surplus between current account and capital account. The balance of international payments appeared large surplus, which lead to a greater appreciation pressure of RMB exchange rate. After the implementation of the managed floating exchange rate system with reference to a basket of currencies in2005, the appreciation pressure of RMB has been a degree of ease, but this kind of pressure still exists which has appreciate by22%from2005to2011. In order to maintain the stability of RMB exchange rate, the central bank was forced to carry out the foreign exchange market intervention. Therefore, how to measure the pressure of RMB in the foreign exchange market and the intervention degree of the central bank are very valuable for forecasting the future trend of RMB exchange rate and making the effective monetary policy.This article firstly reviewed the domestic and foreign literature, introduced the definition and connotation of foreign exchange market pressure(EMP), constructed the EMP index based on the two monetary model. The model discussed the impact of several exogenous variables including economic growth, balance of payments, investment saving, the inflow of foreign capital. Secondly, this article adopted the Weymark Index method to estimate the RMB exchange market pressure index and the foreign market intervention index from1994to2011, which drew a conclusion that RMB against the U.S. dollar exchange rate has been in the pressure of appreciation, more than70%are alleviated through the central bank’s intervention. Finally, this article analyzed the causes of RMB EMP from three aspects including the economic fundamentals, expectation of exchange rate, international pressure. Then put forward the specific policy proposals for the reform of the RMB exchange rate mechanism, monetary policy and the central bank’s foreign exchange intervention.