Reserch On The Cost Of The Sterilization System Of China

Throughout more than 30 years of the reform and opening-up, China has successfully transformed from planned economy to market economy. As the central government adopted export-oriented development strategy, it promoted the development of economic prosperity. However, as the economy developed, the balance of international payments in China appear to be in larger double surplus., and the scale of foreign exchange reserve expands in a rapid rate. By the end of 2013, the total foreign exchange reserves had reached $3.8 trillion. The rapid growth of the foreign exchange reserves caused a large number of the local currency delivery. The monetary base in the form of funds outstanding for foreign exchange, become the main issuance of RMB. Then, it formed a new way for money issuance, and is followed by excessive liquidity and inflation.Due to the impact of foreign exchange, The People’s Bank of China take the sterilization of foreign exchange for the stability of economic development. A number of sterilization tools have been used to control the money supply and avoid the inflation. The theories of sterilization intervention have been summarized in the third chapter, as weil as the valuable experience and lesson in the practice of some nations. And a deep analysis has been made in the sterilization tools used by China. It is concluded that when the sterilization tools is used separately, it is not as fundamentally as to solve the problems of the funds outstanding for foreign exchange. Each tools get many shortcomings. In this paper, I will analyze the costs and benefits of the sterilization tools, and reveal their deficiency with the real data. Finally, there will come up with some policy suggestions, and some thinking with two hot issues.