Research On The Influence Of The Movements Of Foreign Exchangeon Monetary Base In China

Since the reform ofthe foreign exchange management system in 1994, our country received continuous net inflows of foreign exchange through the current account surplus and capital and financial account surplus with the rapid development of our economy, and the rise of foreign exchange lead to constant expansion of the monetary base. In 2005 China’s foreign exchange occupiedthe monetary base more than 100% for the first time. And in December,2008, our country foreign exchange reached the level of 16 trillion RMB, causing its proportion in the monetary base reached the level of 130%, thus making foreign exchange become the main delivery channel of our country’s monetary base. On the premise that China’s foreign trade is continuously expanding, our country foreign exchange increase rigidity. In face of the problems such as inflation and the impact of monetary policy that foreign exchange caused, the central bank and many scholars have studied and actively respond to that. In 2011, however, China’s foreign exchange declined for the first time, and in the fourth quarter of 2011 decline phenomenon went on for three monthscontinually. In August,2015, the level of our country foreign exchange is 28.2 trillion RMB, a drop of 3.8%compared with that earlier this year. Until December 2014, the largest monthly decline of our country foreign exchange reached 8.36%. Under the new economic development condition, this issue is to analyze the influence of the fluctuation of the monetary base and the problems caused by the decline of the foreign exchange, and then to seek reasonable measures to solve the problem.The issue follows the main clue that how thedecline of foreign exchange influences the base money, from both theoreticaland empirical analysis,finally puts forward relevant policy Suggestions.This paper is made up of five parts, the specific contents and main points are as follows:The first chapter is introduction, which briefly introducedthe research background, the significance of research, research status at home and abroad, the contents and methods of researchand the innovation along withthe insufficiency. Among them, the analysis of the scholars at home and abroad focused on howthe enormous foreign exchange with rapid growth influence China’s monetary base, but this paper focuses on the influence that the decline of foreign exchange do to monetary base in our countryon the basis of the new economy, which has important research sense.The second chapter first reviews the development of China’s foreign exchange reserves, on the basis of which it further explored the status quo, characteristics and change tendencyof China’s foreign exchange. The overall trend of China’s foreign exchange is rising first, soared from 448billion RMB at the end of 1994, broke through the 1 billion mark in 2007. However, from the fourth quarter of 2011 it had negative growth, and the growth rate fluctuated.In the past two decades, the features of China’s foreign exchange are:first, China’s foreign exchange assets are centeredto the central bank; second, the foreign exchange growth affected by the international economic environment, there is an obvious volatility, increased difficulties of management. We can explain the change from three aspects:first, the balance of payments varies with the adjustment of the economic environment change; Second, the reform of exchange rate system in China; Third, the expected appreciation of the RMB.The third chapter analyzes the influence of foreign exchange to the monetary base in our country theoretical. From the balance sheet of central bank, the paper analyzed the connotation and composition of base currency in our country, explain the function mechanism of foreign exchange tothe monetary base, finally demonstrated how the decline and the fluctuation of the foreign exchange influence the monetary base, there are three main aspects:first, the foreign exchange volatility weaken autonomy of other channels of the monetary base currency, affecting the independence of monetary policy; Foreign exchange volatility decreases the probability of controlling the monetary base and money supply, weakening the effectiveness of monetary policy. Third,the decline of foreign exchange led to liquidity shortage, improving the market risk and the cost of capital.The fourth chapter is the empirical analysis. The data is selected from 2002 to August 2015, through the establishment of the state space model, detect changes in the our country and the degree of foreign exchange the change influnencing on the monetary base, and conduct unit root and co integration test. Conclusion is that although China’s foreign exchange suffered the trend of declinein recent years, but they are still the main channel of the base money. At the same time, the change of foreign exchange brings influence to other currencies of the money base.The fifth chapter is for policy recommendations. In response to changes in foreign exchange affecting the monetary base and the impact of monetary policy, the central bank need to improve and make use of market environment, play a variety of channels of currency into autonomy, change quantitative monetary tools into price monetary tools in some extent; Guide the market liquidity of rational expectations so as to reduce the cost of risk to keep the interest rates in a reasonable level.