The Study On The Adjustment Of Supporting Policy In The Reform Of RMB Exchange Rate

In 1994, RMB exchange rate regime was changed into market-based, single,managed floating exchange rate. The goal of RMB exchange rate reform was to promote export and increase foreign exchange in the past decades, in order to realize this target, government put out three supporting policies which are compulsory buying and selling FX, asymmetrical foreign exchange market and preferential policies of using foreign capital. Although these arrangements were necessary in that time, what's wrong with its continuing implementing?This paper analyzes the adverse effects derived from above-metioned three supporting policies.The first one is that they gave rise to the fiscal burden including the massive export tax rebate, income tax preference caused by large utilization of foreign capital and the interest expenses caused by the increase in funds outstanding for the hedge foreign exchange of the Central Bank bill to maintain the stable increase in money supply. If these auxiliary systems don't change, the fiscal burden will become too large to bear.Preferential policies of using foreign capital undoubtedly play an important positive role, especially in early stage. But its continuing implementing also brings about obvious negative impact. Utility of FDI don't inevitably exacerbate the dualistic economic structure; On the contrary, Rational utilizing foreign investment can accelerating the transformation of dualistic economy. It is massive foreign investment inflows and unreasonable distributed structure that become one of the causes which strenthen the the dualistic economic structure. This paper restructures two indicators and empirically analyzes the relationship between the FDI and the dualism-based comparing coefficient. What's more, the empirical result reveals that the increase of utilizing FDI aggravates the dualistic economic structure as a whole. Meanwhile, by means of the Panel Data Model, it explores that the differences of per capita GDP displays a strong positive correlation with the indicators of utilizing FDI in thirty provinces, cities and municipalities all over the country.The "Three-round Exchange Model" that was proposed by Evans and Lyons (2002) is applied in the fifth chapter to elaborate the increasing procedure of foreign exchange. It is found that unreasonable foreign exchange market structure is the key reason of leading to rapid increase in foreign exchange reserves.Furthermore, the Additive Model is also established entirely from the angle of supply, followed by the empirical analysis on the state foreign exchange reserve by using the monthly data of the export value, the Sino-US spread, the RMB effective exchange rate index and the retail sales. The result illustrates that the RMB effective exchange correlates negatively with the foreign exchange reserve. Besides, the disappreciation of the RMB effective exchange rate and the resulting appreciation expectation contributed greatly to the increase in the foreign exchange reserve.Pursuing the export and foreign exchange in early stage and exchange rate stability in later stage causes mondel triangle conflicts, that is, the free movement of capital, the exchange rate and independence of monetary policy is impossible to achieve simultaneously. Compulsory buying and selling FX, unreasonable-designed foreign exchange market and large-scale utilizing foreign investment bring about massive foreign capital inflow and rapid increase in FX which make our monetary policy encounter dilemma. Our central bank issues amounts of bills to hedge increase inmonetary supply caused by foreign exchange reserve rise, such doing may lead to more and more costs, even inflation and economic stagnation. Empirical analysis on GDP, CPI and Money supply also shows that the effectiveness of our monetary policy has steadily declined.How to improve the supporting policies? In the seventh chapter, some preliminary ideas are put forward:first of all, the foreign exchange market should be perfected and the exchange rate determination should be transferred to market-makers and more participants so as to truly form a market-driven exchange rate mechanism; then, hot money inflows must be strictly controlled, in the meanwhile, the current foreign reserve stock must be utilized enough to improve its economic efficiency; additionally, the regionalization process of RMB needs speeding up which will impel RMB to be a currency of settlement in East Asian trade and investment; of couse, government should strenthen the management of FDI to encourage them to infow into the central and western areas as well as agriculture; last but not least, it is high time to take all necessary measures to expand domestic demand and transfer the export-oriented economic development pattern into the domestic-demand-drvien pattern.This paper needs to be improved in some aspects because of limits of writer's academic standards and data sources, which mainly lie in:how to distinguish the adverse effects derived from supporting policies of RMB exchange rate reform in 1994 and whether two-way relationship lies in the dualistic economic structure and auxiliary systems of RMB exchange rate reform in 1994.