Analysis Of The Impact Of Foreign Exchange Funds On Monetary Policy Validity

In recent years,with the rapid increase of China's foreign exchange reserves,excessive funds outstanding for foreign exchange has become an important issue in China's macro-finance and seriously interfered with the effective implementation of the central bank's monetary policy.Since 2002,foreign exchange funds have been the main channel of money supply in China.However,in 2015,China's foreign exchange reserves declined for several consecutive quarters,resulting in the continuous decline of foreign exchange funds.In this paper,from the perspective of the impact of foreign exchange funds outstanding on the operating objectives and intermediary objectives that will be affected by the transmission of monetary policy,we explain how the foreign exchange funds outstanding has an impact on China's monetary policy transmission.The purpose of this paper is to analyze how foreign exchange funds outstanding affect the operating environment of China's monetary policy and provide a theoretical basis for the reform and innovation of monetary policy transmission channels.This article consists of five chapters.The first chapter is the introduction,which gives a brief introduction to the background,significance and framework of the study.Chapter two defines the concept of foreign exchange funds outstanding,explains the formation reasons and main sources of foreign exchange funds outstanding,and briefly introduces China's monetary policy transmission channels.In the third chapter,the thesis analyzes the foreign exchange on China's monetary policy transmission channels,the effects of each part in transmission channels function order,successively from monetary policy tools(open market operations,statutory reserve ratio,rediscount,refinancing to the operating goals(the monetary base,money market benchmark interest rate),and finally to the mediation goal(M2,shibor interest rate)is analyzed and concluded.First,because of the increase of funds outstanding for foreign exchange,the central bank generated too much liquidity for sterilization of funds outstanding for foreign exchange,relied too much on the issuance of bills by the central bank and frequent adjustments of the statutory reserve ratio,and neglected the value of the re-lending rediscount instrument.The effect of monetary policy instruments on open market operations and statutory reserve requirements is weakened and the monetary policy operation is in a passive position.When the funds outstanding for foreign exchange are reduced and the liquidity of the banking system is no longer comfortable,short-term impact will be formed on the currency market,causing market fluctuations.Thirdly,foreign exchange funds outstanding affects the total amount of basic money.The total supply of China's basic money is basically dominated by the change of net foreign assets,namely,foreign exchange funds outstanding,which makes China's basic money supply have a strong endogenous feature.At the same time,under the background of continuously increasing funds outstanding for foreign exchange,the bill market of China's central bank tends to mature gradually.China's central bank can influence the benchmark interest rate of money market by issuing and regulating the interest rate of central bank bills.Finally,this chapter expounds the influence of foreign exchange funds on M2 from two perspectives:on the one hand,it affects the total amount of M2;On the other hand,the increase in funds outstanding for foreign exchange affects the size of the money multiplier,which in turn affects the change in M2.Chapter four makes empirical data verification and analysis on the impact of funds outstanding for foreign exchange.The first section first verifies the influence channel and influence coefficient of foreign exchange funds in China's currency multiplier.It is concluded that funds outstanding for foreign exchange change the monetary multiplier by affecting the structure of the central bank's balance sheet:the higher the proportion of net foreign assets to total assets,the higher the monetary multiplier;The higher the proportion of central bank bills in total assets,the higher the monetary multiplier.In the second section,the author conducted long-term co-integration analysis and impulse test and variance decomposition on the impact of foreign exchange funds outstanding on shibor,the benchmark interest rate in the currency market in the future.The results showed that the funds outstanding for foreign exchange had no significant impact,which,on the one hand,reflected the sterilization effect of China's central bank,and on the other hand,showed the long-term stability of interest rates.At the same time,the impact of foreign exchange outstanding funds on shibor is mainly achieved indirectly through the statutory reserve ratio,fixed deposit rate and central bank note issuance rate.From the results of empirical analysis of the long and short term,the impact of the change of the statutory reserve ratio on the short-term is mainly concentrated,while the impact of the difference of deposit interest rate and interest rate on shibor is mainly long-term.In chapter 5,the paper summarizes the influence of foreign exchange funds outstanding on the transmission of monetary policy.On the one hand,funds outstanding for foreign exchange make it more difficult for the central bank to regulate by affecting the basic currency and the monetary multiplier,which makes the controllable nature of the "quantitative" monetary policy objective weakened.On the other hand,funds outstanding for foreign exchange have an indirect influence on the size of money market interest rate through factors such as the interest rate of bill issuance by the central bank,so that China's monetary policy initially has the characteristics of "price type" transmission channel.Generally speaking,the decrease of foreign exchange funds has changed the operating environment of China's monetary policy,and made the transmission channel of monetary policy change from "quantitative" to "price".According to the analysis conclusion above,this paper puts forward some Suggestions.