A Study On The Reversal Effectiveness Of China 's Central Bank Notes

Based on the actual of double surplus of the International balance of payments,we do the research on Monetary Sterilization.This paper first describes the Economics reason which lead Central Bank to carry out large-scale Intervention of foreign exchange and monetary sterilization of under the open economy.Then we show a detailed review about the actual monetary sterilisation since the last century90years,at the same time we make some comments on the advantages and disadvantages of monetary policy tools uesd in different historical stages.In the theoretical part,we use the portfolio balance model and the central bank’s balance sheet to analyse the principle and mechanism of sterilization by the central bank bill.Then,we use time series econometrics to carry out empirical analysis of central bank bills.The empirical results show that the Central Bank Bills are issued by the passive increase in foreign exchange,reducing the monetary supply based on freezing the monetary base,which can maintain a stable exchange rate.Compared with Ml,the sterilization effect on M2done by the Central Bank Billson is pretty good than of M1in time and amplitude.Though There exists some certain delay in the sterilization of M2.From the analysis above,we can conclude that facing the excess liquidity,the Central Bank will take some Monetary policy tools to achieve the target of M2firstly.In addition,the issuance of Central Bank Bills can have a significant impact on China’s market interest after a certain period of time,which will attract the foreign capital inflows.As a result,the monetary sterilization pressure is improved.On the whole,we think China’s Central Bank Bills is not a perfect policy tool, but basically reached the purpose of hedge excess liquidity. In the specific national conditions,it is still the best choice in the short term.Finally, we offer the policy suggestions from the following aspects.Improve the degree of Marketization,reduce the monetary sterilization pressure;in the short time,take some efforts to improve the central bank bills itself;in the long term,try to use the national debts as monetary sterilization instruments;gradually introduce the way of price sterilization.