American Quantitative-Easing Monetary Policy And China’s Counter Measures

After the subprime crisis in2007, American Federal Reserve has launched three rounds of Quantitative Easing (QE) monetary policy, cutting the benchmark interest rate nearly to zero. The QE policies generate significant impact on the newly emerging counties by ways of international trade and the dollar-based international monetary system. China has also adopted many countermeasures. An analysis on the impact of QE policies and its transmission mechanism is quite meaningful for China in such a dramatically changing world.This paper is divided into six parts as the following.The first chapter is an introduction which illustrates the background and meaning of this paper. This part also makes a review on former studies on QE policies, such as its characteristics, transmission mechanism and the spillover effect. Besides, it presents the innovation idea and shortcomings of this paper.The second chapter introduces the contents and policy instruments of QE policies in details, which put the emphasis on the third round of QE monetary policy.The third part analyzes the impact of QE policies and the reason of that. The impacts include two parts, the potential impacts brought about by exchange rate and interest, and the potential impacts caused by price changes of major commodities. The former potential impacts are decreasing value of foreign exchange reserve, harming international trade, exacerbating the inflation and increasing the risk of asset bubble when the QE policies are over. The latter impact mainly refers to the imported inflation. The internal reason why American QE monetary policies have such impact on Chinese economic are as follows:the international monetary system is based on American dollar; American speaker louder than China in international business due to the economic situation; how RMB exchange rate is formed; there are industrial structure differences between China and America.The fourth chapter summarizes two kind of Chinese countermeasures, namely short-term countermeasures and long-term countermeasures. In the short term, the mainly risks are inflation and asset bubble in real estate and stock market. Thus, the approaches are an integrate application of monetary policies, such as open market operations, deposit reserve policy and interest rate. These measures can reduce the domestic liquidity, relive the inflation and control the economic bubble. Besides, there are also some creative monetary measures, for example, the use of Standing Lending Facility. In the long term, China takes an active part in the reconstruction process of international monetary system and the reform of international economic and political relationship. Presently, China has strengthened international cooperation, expanded the cross-border RMB settlement, played an important in building new financial institute among developing counties such as BRIC markets. In addition, China also enlarges its strategic reserve, which will mitigate the passive impact of American QE policies.The last part is a conclusion of this paper. The countermeasures China had taken works well. The bubble and inflation risk has been eased and China also avoid some economic disaster when America quits the QE monetary policy.