Research On The Reform Of RMB Issuing Mechanism Under The New External Economy

Based on the new situation occurring in the external economy in2012, especially the capital and financial account being deficit, it does shift the "twins surplus" of external activities, which was always happened before, slowing the pace of issuing the base money via purchasing the foreign exchange. Meanwhile, investigating the PBC’s open market operations, we find there are not any central bank’s bills issuing in2012, instead via the repos to adjust the amount of currency in circulation. Furthermore, even the external economy becoming as usual of huge surplus in2013, the repos still dominates the open market operations by PBC, no matter the issuing times or cumulative amounts, the repos are much higher than the central bank’s bills. Therefore, it preliminarily manifests the monetary authority is planning to shift the RMB issuing mechanism, from via purchasing the foreign exchange to open market operations. Finally, the transformation of RMB issuing mechanism is analyzed in the framework of RMB internationalization process, and we believe under the shifted issuing mechanism through open market operation will achieve better economic performance.Since analyzing the balance sheets of FRB and ECB’s, it is agreed that the shift of RMB issuing mechanism is consistent with the developed countries’, mainly through the open market operations to supply and return the currency. More importantly, the literature has showed that the mechanism of issuing currency via purchasing the foreign exchange, prevailing during the period of1994to2011, is unbound, still with many pitfalls. It is not only passive to the central bank, but also costly, since the monetary authority should bear the huge sterilizing cost. Fortunately, the mechanism of issuing currency by purchasing short-term securities, especially treasury bills, in open market is inherent not only binding, but also flexible and fine-tuning, which enables the central bank to be in active position in manipulating the macro economy. Finally, it is advised that to fundamentally shift the RMB issuing mechanism, the monetary authority should deepen the reform of the financial system, including strengthening the mechanism of RMB exchange rate formation and management, developing the money market, and enhancing the discipline of treasury bonds issuing.