Research On The Influence Of Foreign Exchange Reserves Increasing To Monetary Policy In China

Since the reform of the China’s foreign exchange system from1994, our foreignexchange reserves have maintained sustainable and rapid growth. Up to the end of2011，thetotal amount of foreign exchange reserves has already amounted to31811.48hundred millionUS dollars. On one hand, it has improved our ability of adjusting balance of payments,interfering with foreign exchange market and paying. On the other hand, the fast growth offoreign exchange reserve also has brought some negative influences to our country’seconomic development. The amount of money supply will grow fast as the foreign exchangereserves increase, and the structure, time lag of money supply and endogenous also will bechanged. And the effectiveness of the operation tools of monetary policy will be subject tocertain restriction, then made it difficult to carry out monetary policy. Therefore, how toensure that the foreign exchange reserves keep an appropriate scale, and realize control offoreign exchange reserves in a scientific means, and analyze the influence of foreignexchange reserves on the effectiveness of monetary policy, so as to improve the effect ofmonetary policy are of great significance.At the beginning, this article elaborates on the mechanism between foreign exchangereserves and the monetary policy based on research. Then, it reviews the phased developmentof foreign exchange reserves from the reform of the China’s foreign exchange system, and thecalculation of some indicators shows that foreign exchange reserves is beyond an appropriatescale, Then it talks about the reasons of the increasing of the foreign exchange reserves,including the rapid development of China’s economy, the surplus of international payment formany years, the appreciation of RMB and foreign exchange system. The following is theimportant part of this paper, it analyzes that foreign exchange reserves had brought thespecific effect on monetary police. Firstly, the foreign exchange reserves effects on theintermediate target of monetary policy. Secondly, the effectiveness of the operation tools ofmonetary policy will be subject to certain restriction. Thirdly, it influences on the ultimategoal of monetary policy, increasing of foreign exchange reserves leads to inflation andconflict between the exchange rate policy and interest rate policy. Therefore, the foreignexchange reserves increasing sharply and has become the significant factor of restricting thevalidity of monetary policy. Finally，based on the conclusion，it puts forward the corresponding proposal and themeasurement to the foreign exchange reserves in China. Mainly including setting up foreignexchange trued fund, cutting off the contact between the foreign exchange reserves and themoney supply, relaxing exchange rate fluctuations so as to coordinating exchange rate policyand monetary policy. In addition, reforming of the foreign exchange administration system,and innovating monetary policy tools to expand the hedge operation of the space are alsoincluded.