Analysis Of Effects On Position For Forex Purchase Of RMB Cross

Along with the opening up of the economy in our country, especially the RMB settlement of cross-border trade carried by government, Chinese foreign exchange reserve increases year by year, due to the current account and capital account keep surplus, and the market has RMB appreciation expectation. It has both advantage and disadvantage of our country. On the one hand, large foreign exchange reserves provide conditions for the expansion of import and export,which promote the increase of China’s gross national product. Excessive stock of foreign exchange reserves, on the other hand, will increase opportunity costs, due to the influence of import and export trade, direct investment and RMB settlement. The increasing of foreign exchange reserves leads to the increasing of our foreign exchange outstanding rapidly. While the increase of position for forex purchase leads to the central bank issue excess currency, which resulting in the increase of base money.On April8,2009, the State Council executive meeting decided to carry out the RMB settlement of cross-border trade pilot in Shanghai, Guangzhou, Shenzhen, Zhuhai and Dongguan. It is significant to our country. In January2011, the People’s Bank of China issued "Management approach about overseas direct investment in RMB settlement pilot", which permitted domestic enterprises to carry out overseas direct investments by RMB settlement. In October2011, in comply with the law of "Management approach about foreign direct investment in RMB settlement" issued by People’s Bank of China, foreign enterprises and economic organizations or individuals can use RMB to invest directly in China, and apply for RMB settlement business to the bank. At the same time, the bank can be performed RMB settlement business in accordance with the regulations for foreign enterprises directly. These two measurements promote the process of capital account liberalization and cross-border RMB trade settlement.Due to the continuously opening of capital accounts and the expanding of RMB settlement of direct investment, the scale of the business are also increasing, and foreign enterprises and individuals are more willing to accept RMB. According to the People’s bank of China data shows that in2013, the RMB settlement of direct investment amounted4.63trillion yuan, increased by57.48%than last year. The RMB settlement of outward direct investment totaled533.74billion yuan. The overseas direct investment annual expenditure amounted85.61billion yuan. The foreign direct investment annual income totaled448.13billion yuan. Direct investment in RMB settlement will affect position for forex purchase from the two aspects, the first is that foreign direct investment in RMB settlement will reduce position for forex purchase and the second is that overseas direct investment will increase position for forex purchase. Combined with the above data you can see that direct investment in RMB settlement to a certain extent eased the increasing of foreign exchange outstanding in our country. Because from the view of direct investment, if the amount of foreign direct investment in RMB settlement is larger, the use of foreign exchange settlement amount will be less, which will reduce position for forex purchase.In order to coordinate the RMB settlement of cross-border trade, our government at present basically abolished the mandatory exchange settlement system, adopted the Settlement imbalance. The enterprise and residents according to their willingness buy and sell foreign exchange. Due to the surplus of China’s current account and capital account over the years, the cardinality of buy foreign exchange is greater than the cardinality of sell foreign exchange, coupled with appreciation expectations of RMB, enterprises and residents prefer selling than buying foreign exchange. So the total amount of buy foreign exchange is greater than sell foreign exchange in China, market entity sell foreign exchange which resulted in increasing in China’s position for forex purchase.In recent years, the RMB exchange rate has maintained a modest appreciation, so the market entity also has been held on the appreciation expectations of RMB. Because of the appreciation expectations of RMB, the market entity tend to hold RMB, they sell foreign exchange to commercial banks in exchange for the RMB, the stock of position for forex purchase will seemingly rise.The cause of position for forex purchase fluctuation in our country is complicated. This paper believes that if the RMB settlement of cross-border trade extended to capital account, the direct investment, RMB settlement of direct investment, foreign exchange settlement and sales system, and the RMB exchange rate is the main reason of China’s position for forex purchase.This paper established a model of two enterprises to discuss and verify my own point of view. The result shows that the overseas direct investment, foreign direct investment, RMB settlement of overseas direct investment, the RMB settlement of foreign direct investment, the RMB exchange rate, foreign exchange settlement and sell will influent the position for forex purchase.Structural setting of this article in the first chapter discusses the background and significance of the topic, research methods and innovation; second chapter summarizes the theory about position for forex purchase, Capital account convertibility, the RMB exchange rate, the RMB settlement of cross-border trade. Next chapter, I have built a model, and analysis the influence on position for forex purchase of various factors, like the RMB settlement of overseas direct investment, the RMB settlement of foreign direct investment, RMB exchange rate etc. Then, in the fourth chapter, I analyze the influence on inflation, under the context of carrying out RMB settlement of direct investment, and offer suggestions and help in the last chapter.