RMB Internationalization Impact On Monetary Policy

The impact of RMB internationalization on macro variables and transmission mechanism of monetary policy is analyzed theoretically and empirically in this paper. Macro variables include domestic monetary demand and supply, interest rate, exchange rate, economic growth rate, inflation and other macroeconomic variables, while transmission mechanism of monetary policy is subdivided into transmission mechanism of interest rate, exchange rate and asset price. The empirical results show that adverse impacts on economic variables are increasing monetary supply, inflationary pressure, higher interest rate and falling stock market. The impact on China’s monetary policy transmission mechanism is less effectiveness and independence of both interest rate and asset price transmission mechanism and block in exchange rate transmission mechanism. In response to the above impacts, we should adopt the following measures. Firstly, China’s domestic monetary supply should remain stable. Secondly, we should improve monitoring and forecasting system of monetary aggregates. Thirdly, we need to further accelerate marketization of interest rates. Fourthly, we should combine long-term stability and short-term market-based fluctuation of exchange rate. Fifthly, we have to strengthen financial market reform. Sixthly, we should transfer from original interest rate transmission mechanism to exchange rate transmission mechanism and enhance the flexibility of open market operations.