Research On The Impact Of Foreign Exchange Reserve On The Monetary Policy In China

This paper first elaborates on the mechanism between foreign exchange reserves and the monetary policy based on domestic and international research results,and then explains how it increase,and the structure,endogenous and time lag of money supply also will be changed.In order to eliminate the negtive impact,the operation tools of monerory policy will be used by central bank frequently so that their effectiveness will be subject to certain restrictions.The empirical analysis also shows that there is strong positive correlation between foreign exchange reserves and money supply.The increase of foreign exchange can promote economic development,but will also strengthen inflationary pressure.Both theoretical and empirical analyses have proved that foreign exchange reserves really have a great impact on Chinese monetary policy,which also lead to liquidity surplus,inflation and appreciation of RMB.In order to eliminate above negative impacts,a new sound foreign exchange reserve management system should be established to minimize the negative effects.At the same time,we should deepen the reform of exchange rate system and improve the monetary policy regulation so that the negtive impact of the foreign exchange reserves to Chinese monetary policy can be reduced greatly.