Effect Of Funds Outstanding For Foreign Exchange On China Inflation

Since our country accessed to the Word Trade Organization in December2001, the degree of opening to the outside world of our country has improved greatly,China’s international balance of payments presented the continuous "double surplus" situation. With the larger scale of foreign exchange reserves, the scale of Funds Outstanding for Foreign Exchange accompanied by foreign exchange reserves in the sharp increase, Funds Outstanding for Foreign Exchange has become the main channel of the Monetary Base. At the same time, due to the role of various factors, three rounds of duration longer inflation occurred in our country. Many scholars believe that because of China’s high Foreign Exchange Reserves and Funds Outstanding for Foreign Exchange issues directly lead to the central bank put too much money to the money market on the basis of the excess currency, and stimulate the level of prices to rise further, that is to say, Funds Outstanding for Foreign Exchange is one reason to the inflation of our country.Based on the related theory of economics, this paper first analyzed the impact of foreign exchange the transmission mechanism of inflation. This paper holds that the growth of Funds Outstanding for Foreign Exchange to expand the Monetary Base supply, and through the money multiplier amplification eventually affect the price level.In order to validate the analysis result, this paper adopted in January 2003 to December2014 in Funds Outstanding for Foreign Exchange, domestic credit and CPI monthly data, through co-integration test and granger causality test, hope to visit China’s Funds Outstanding for Foreign Exchange and whether there is a long-term stable equilibrium relationship between inflation and causality.In this paper, through empirical analysis it is concluded that there is a long-term impact on our country’s price level with the change of Funds Outstanding for ForeignExchange, and one-way granger causality between the Funds Outstanding for Foreign Exchange rate and CPI, so must strengthen the management of Funds Outstanding for Foreign Exchange. Finally, this paper through the analysis on the Funds Outstanding for Foreign Exchange management in our country existing difficulties and problems, from the perfect of PBC on Funds Outstanding for Foreign Exchange sterilization measures,promote the capital out to sea, and accelerate the internationalization of RMB and so on three aspects put forward some rationalization Suggestions.