| Since 1994, foreign exchange reserves continued to rise in our country, China's foreign exchange reserves surpassed Japan as the world's largest holder of foreign exchange reserves in 2006.At the same time, the domestic economy has started to heat up, the money supply increased significantly, prices rised. When the effect of the outside economy becomes stronger than before, people pay more attention to the relationship between foreign exchange reserves and inflation. In our foreign exchange system, how much the effect on the increasing of foreign exchange reserves affects the supply of money and then form the pressure at the price is a problem which is worth to research.With prices generally continued to rise, the price rising has transmitted from the field of food to the production and other fields. The current round of inflation has become the hottest phenomenon and a prominent issue in the macroeconomic situation, it has a very close relationship with the lives of each of us. As a result of such accidental factor like a shortage of food supply caused by the disaster and disease, a structural inflation is not sufficient to explain the continued price rise for some time. The reason for a new round of inflation will eventually result from the devaluation of the currency due to excessive money supply.Through the analysis of our country's retrospective inflation in the conditions of the open economy, we can see that, the balance of payments was becoming double surplus year after year and the foreign exchange reserves has increased year by year as China's increasing opening to the outside world, till it exceed domestic credit, becoming a major source of base money Since reform and opening up. This paper, present the growth process of China's foreign exchange reserves, grouped into four stages, discuss the direct cause of sustaining increase Of foreign exchange inflows, do a theoretical analysis of the pathway in which foreign exchange push up the price level. In the basis of theoretical analysis, this paper select the actual statistical data of our country, use of co-integration theory, establish the econometric model between the level of foreign exchange reserves with the price, based from 2006 to 2008 for a new round of inflation's the range of sample selection, see about the foreign exchange reserves' s impact of China's new round of inflation throughout an Empirical Analysis perspective. Finally, for the status quo of the growth of China's foreign exchange reserves, the author put forward policy recommendations of weakening pressure on prices caused by the rapid growth of foreign exchange reserves. |
