Research On The Impact Of Short-term Cross-border Capital Flow On China's Foreign Exchange Reserves

The Third Plenary Session of the 18 th CPC Central Committee made clear plans for the convertibility of capital account in China,demanding the two-way opening of the capital market and orderly upgrading the convertibility of international capital and financial transactions,under the framework of sound macro-prudential management,establish a management system for external debt and capital flows,and accelerate the convertibility of capital account in China.Since then,China's cross-border capital flows have become larger and larger,especially the highly speculative short-term capital has frequently entered and exited China through various channels,showing a two-way wave of violent situation,and its influence on China has become more and more obvious.Short-term cross-border capital flows can not only affect a country's foreign exchange reserves through the channels of imports,foreign direct investment and short-term foreign debt,but also affect people's judgment on the value of money and financial stability through short-term cross-border capital shocks,thus intensifying the impact on foreign exchange reserves through the currency substitution effect.Therefore,studying the external shock of short-term cross-border capital and its mechanism that affects the foreign exchange reserves caused by currency substitution changes is very meaningful for identifying the signs of crisis and taking corresponding crisis management measures.This paper uses a combination of theoretical and empirical analysis methods.Firstly,this paper introduces the related theories of short-term cross-border capital flows and foreign exchange reserves,and analyzes the relationship between short-term cross-border capital flows and foreign exchange reserves,as well as the relationship between currency substitution effects and foreign exchange reserves caused by short-term cross-border capital flows.Then,based on the current situation of our country,this paper analyzes the impact of short-term cross-border capital flows and changes in the degree of currency substitution on the scale of foreign exchange reserves.Finally,this paper constructs the TVP-VAR model with the short-term cross-border capital flow scale,currency substitution rate and foreign exchange reserve scale from January 2011 to December 2017 in China.Through unit root test,MCMC simulation and impulse response analysis,this paper empirically analyses the impact of short-term cross-border capital flows on the change of foreign exchangereserves in China and the impact of short-term cross-border capital flows on China's foreign exchange reserves by causing currency substitution effects.The results show that short-term cross-border capital flows are positively correlated with changes in China's foreign exchange reserves.Inflows will increase the size of foreign exchange reserves,while the currency substitution effect brought by short-term cross-border capital inflows will further increase foreign exchange reserves;The withdrawal of capital will reduce foreign exchange reserves,and the degree of currency substitution will be greatly deepened in the short-term.This change in currency substitution caused by short-term cross-border capital outflow will increase the consumption of foreign exchange reserves.Based on the above results,this paper proposes relevant policy recommendations for dealing with short-term cross-border capital shocks and stabilizing the scale of foreign exchange reserves in the new economic situation.