The Influence Of Foreign Exchange Reserves To Monetary Policy In China

Back in February2006,the scale of China’s foreign exchange reserves surpassedJapan to have the largest foreign exchange reserves in world.Evan in2012part of themonths the scale of foreign exchange reserves appear decline infrequently,but thelarge scale and the speed of growth, still attracted more and more attention.Tomaintain a proper scale of foreign exchange reserves,can guarantee a country’s abilityto pay debt,to make up for the balance of payments deficit,maintain foreigneconomic on the track and to ensure the stability of the national currency exchangerate,have adequate foreign exchange reserves can deal with the problem of foreigndivestment calmly.But in China’s increasingly open economy condition,the influenceof foreign exchange reserves have not been limited to the international balance ofpayments,maintain the stability of currency exchange rate,is the connection point ofinternal and external economy,and also have a great impact on monetary policy.When the central bank in order to control the scale of foreign exchangereserves,restrain currency appreciation and absorption of foreign exchange, which onthe monetary base is bound to increase liquidity, implementation of which directlyinfluence the ultimate goal of monetary policy. Endogenous growth of foreignexchange reserves will cause the money supply, the implementation effect onoffsetting foreign exchange reserves will also influence the effect of monetary policy,the time lag of monetary policy, which interfere with the effectiveness of monetarypolicy.In this context, this paper on the basis of previous studies, from the operation ofmonetary policy instruments, intermediate targets, conduction delay, the ultimate goalof four aspects described the scale of China’s foreign exchange reserves on theeffectiveness of monetary policy, through theoretical and empirical analysis. Foreignexchange reserves will affect the base money, affect the money supply change thestructure of the delivery of the money supply, delay affect the money supply, foreignexchange reserves are too large, will enhance the supply of money from thetheoretical analysis concluded: endogenous, the central bank’s monetary policyimplementation results will be affected. Empirical analysis concluded that: there is apositive relationship between foreign exchange reserves and money supply, but thelag between changes of base money than through domestic credit base money, themoney supply delays, foreign exchange about a shorter, thereby strengthening thedifficulty of the implementation of monetary policy, affect the transmission ofmonetary policy. In the policy recommendations section, from the rationalmanagement of the big scale of foreign exchange reserves, increasing the centralbank sterilized intervention measures and efforts, establishment of foreign exchangestabilization fund and expand the RMB exchange rate floating range four aspects todescribed.