A Study On Welfare Effects Of China's Foreign Exchange Black Market

As well as China Continuous reforms in its exchange market, the black market also continues to develop. The black market current makes a serious disruption of exchange economic order, and fosters the smuggling, obtaining foreign currency through deception, tax fraud and other illegal acts, the country's economic security posed by the serious harm. With the continuous deepening of the reform on foreign exchange system, the black market will eventually move toward decline, but in the current situation, whether from the demand or supply side, the black market will be a long time. This also requires us to in-depth study of the formation mechanism of black market, to find the reasons for its existence from the source, so as to suit the remedy to meet the state's fundamental purpose of the exchange rate system reform.Starting from the analysis of the black market impacting on social welfare, this paper build a model of welfare effects of foreign exchange black market, and deduced the degree of scarcity of resources in the foreign exchange black market is not likely to increase social welfare at the same time, it may reduce total welfare, and gives the judge sign - the black market premium rate symbols. From the perspective of demand and supply, article select foreign exchange reserves adequacy ratio and inflation rate as the explanatory variable to represent the scarcity of foreign exchange resources, black market premium as the explanatory variable to represent the welfare effect of foreign exchange black market, and analyze what kind of relationship that exists between them.Finally, comparative empirical study of China's data is given. Through the empirical study, this paper draw the following conclusions: Adequate foreign exchange reserves on the negative impact of black market premium rate is significant, the inflation rate on the impact of black market premium was not significant, and the existence of the current black market is to reduce the level of overall welfare. On the status of China's exchange market, we need a foreign exchange reserves adequate rate of 170 percent in order to make the black market premium rate maintained at a negative level, so that the exchange market will achieve the maximization of social welfare without the black market. At the same time, in the current conditions to reduce the exchange market makers bank bid-ask spread is also one of effective ways to combat the black market.