The Analysis Of RMB Exchange Rate And Foreign Exchange Reserves On China's Money Supply

Since the reform of China's foreign exchange management system in January 1994,the RMB exchange rate is showing an overall downward trend,which is the RMB basically continued in a state of appreciation,and at the same time,foreign exchange reserves also showed a continued rapid growth trend.The RMB exchange rate fluctuations will through foreign exchange market causing the change of China's foreign exchange reserves.As an important part of China's official reserve assets,whose change will cause changes in the money supply in china.At present,our country's economy is in the period of development and transition,so the continued appreciation of the RMB and the rapid growth of foreign exchange reserves is bound to China's money supply shocks,while the money supply as the only intermediate target of China's monetary policy adjustment,which relates to the formulation of monetary policy and effective implementation.Therefore,it is of great theoretical and practical significance to study the impact of RMB exchange rate and foreign exchange reserves on China's money supply.On the one hand,not only conducive to the people's Bank of China control the status of RMB exchange rate,foreign exchange reserves and money supply in China effectively,moreover conducive to the people's Bank of China grasp the initiative of money supply in China in the future;on the other hand,it also conducive to China's monetary authorities to make effective monetary policy,so as to better promote the smooth and healthy operation of China's economy.This paper will analyze the impact of RMB exchange rate and foreign exchange reserves on China's money supply from two ways of theory and demonstration.At first,to sort out the existing literature at home and abroad,meanwhile to evaluate them;secondly,it is the relevant concepts and theoretical explanation of the RMB exchange rate,foreign exchange reserves and money supply and their relationship;thirdly,it is the qualitative analysis of RMB exchange rate,foreign exchange reserves and money supply,and explains the reason of their three changes,and then analyzes the intrinsic link between the RMB exchange rate,foreign exchange reserves and money supply.Based on this,focusing on the analysis of the path of RMB exchange rate,foreign exchange reserves and the effect of the conduction process the monetary supply in china;finally,using unit root test,Johansen cointegration test,Grainger(Granger)causality test and impulse response function and regression analysis makes an empirical analysis of RMB exchange rate,foreign exchange reserve and money supply in China from January 2006 to December 2016.The empirical results show that there is a long-term equilibrium relationship between the RMB exchange rate,foreign exchange reserves and money supply,and there are two cointegration relationships between the three variables.In addition,the RMB exchange rate and foreign exchange reserves are not the reasons of Grainger's money supply(Granger).By the impulse response function analysis showed that the impact of RMB exchange rate,foreign exchange reserves of China's money supply is persistent;and from the regression analysis result shows that the impact of RMB exchange rate on China's money supply M2 and M0 are negative impact,the impact on M1 is positive effect,and the effect of foreign exchange reserves on China's currency supply are positive influence.According to the above analysis,this paper puts forward to reforming the foreign exchange management system progresively,improving the formation mechanism of RMB exchange rate,and in the meantime,perfecting the regulation system of open market,strengthening efforts to control the money supply,keeping the basic balance of international payments,reducing the impact on money supply,optimizing the structure of foreign exchange reserves and foreign exchange reserves and other reasonable policy suggestions,in order to reduce the changes in RMB exchange rate and foreign exchange reserves of China's money supply shock.