The Analysis On Effect Of Funds Outstanding For Foreign Exchange On Inflation

As the increasing openness of Chinese economy, the balance of payments was becoming double surplus continuously leaded to a significant foreign exchange reserve accumulation, the funds outstanding for foreign exchange also have increased, becoming the main source of money supply, which affects the inflation.Article is based on economic theory. From the theoretical analysis of the transmission mechanism is as follows:balance of payments surplusâ†'the net foreign assets increasedâ†'foreign exchange reserves increasedâ†'funds outstanding for foreign exchangedâ†'base currency increasedâ†'the money supply increasedâ†'inflation. In addition, the paper used statistical data of2001-2012, to demonstrate that funds outstanding for foreign exchange changes have a long-term effect upon china’s price, increasing inflationary pressures. At the same time, the paper analysis of the impact of funds outstanding for foreign exchange on the existence of time-delay effect of inflation, on the latter form of hidden inflation pressure. So we need strengthen funds outstanding for foreign exchange management. Finally, funds outstanding for foreign exchange through the analysis of the difficulties, from improving the central bank’s foreign exchange policy of the write-off, adjusting the industrial structure and rational and effective using of foreign exchange reserves have been made a number of areas such as the actual solution.