The realization of the ultimate goal of monetary policy depends on the appropriate intermediate goal of policy and effective policy tools and transmission mechanism. When the foreign exchange accounts for a certain scale, there may be some problems in the existing monetary policy system:

1. Intermediate goal of monetary policy

Before 1994, foreign exchange needed some RMB funds, but this part of the funds accounted for a low proportion in the total amount and increment. Controlling the growth of money supply is mainly to control domestic credit, that is, the scale of credit. Since 1994, the proportion of RMB funds invested in foreign exchange has greatly increased. If the credit scale control method is still adopted, in other words, the existing credit scale is maintained, the result will inevitably be that the growth of money supply will exceed the control target. In this case, the credit scale management model is invalid and replaced by controlling the money supply. From 65438 to 0996, China's central bank officially took the money supply as an intermediary target, and it was a common practice in market economy countries to take the money supply as an observation indicator of whether the money is suitable or not and as an intermediary target of monetary policy. It can be considered that the foreign exchange account has greatly changed the monetary intermediary goal of China policy makers.

2. Monetary policy tools

Traditional monetary policy operation mainly relies on three policy tools: open market operation, discount rate and statutory reserve. The central bank used these monetary policy tools flexibly according to the economic development, and maintained the steady growth of money and credit. Eight interest rate cuts, two reductions in the deposit reserve ratio and one rise, cancellation of loan scale control, increase in refinancing and rediscounting, and introduction of base currency through open market operations. Of course, the transmission of monetary policy is mainly achieved through the bank's credit system. However, due to the insufficient marketization of interest rates, the reform of bank corporatization has not been completed, and the effect of credit system transmitting monetary policy has been greatly reduced. Since 1994, the amount of foreign exchange has increased year by year. In order to reduce the influence of foreign exchange on the base money supply and avoid the pressure of domestic inflation and real exchange rate appreciation caused by the substantial increase of money supply, the central bank has to take measures to offset the inflow of foreign exchange reserves. That is to say, when the supply and demand in the foreign exchange market are unbalanced, the central bank buys or sells foreign exchange, thus putting in or withdrawing the base currency accordingly. Before 1997, the central bank's hedging means was mainly to recover the refinancing of commercial banks. After 1997, the central bank began to use open market operations to offset foreign exchange holdings. In fact, open market operations have become the most important monetary policy tool in China.

However, as the main tool of open market business, China's national debt has a long term and few varieties, which makes the open market business lack carriers and the market transaction volume is small. Therefore, there is less and less room for the central bank to maintain an appropriate money supply through hedging. The data shows that since February, 2003, in order to keep the steady growth of the base currency and the relative stability of the interest rate in the money market, the central bank has carried out 20 repurchase operations in the open market continuously, and accumulated 21400 million yuan of the base currency. However, with the frequent operation, the face value of the national debt held by the central bank at the end of last year was about 286.3 billion yuan. Excluding the part occupied by 20 repurchases, the current national debt balance is only a quarter of the original. There is not much room to continue the repurchase operation, and the repurchase efforts are weakening. At the end of March, the balance of M2 was 19.4 trillion yuan, a year-on-year increase of18.5%; The balance of China's foreign exchange reserves is 31600 million yuan, up 38.8% year-on-year. The money supply is more than enough, and the task of withdrawing funds is still arduous. In order to ensure the effective transmission of monetary policy, we will continue to withdraw the base money and hedge the rapidly growing foreign exchange holdings (to support economic growth, the central bank has been continuously increasing the base money supply through foreign exchange holdings since 200 1). On April 22, 2002, on the basis of the pilot, the central bank began to formally issue central bank bills, and implemented the repurchase function through central bank bills. It can be considered that the continuous growth of foreign exchange accounts has promoted the innovation of the central bank's monetary policy tools to a certain extent.

3. Foreign exchange has become the main channel for the base currency.

The loan-to-deposit ratio of financial institutions is rising.

There are two ways for the Bank of China to put in the base currency: first, refinancing; Second, rediscount; Third, financial borrowing and overdraft; Fourth, foreign exchange. For a long time since the reform and opening up, refinancing and financial overdraft have been the main channels for China's base money. However, since 1995, the situation has changed. First of all, with the promulgation and implementation of 1995 Law on the People's Bank of China, the relationship between the People's Bank of China and the finance is interrupted, and the financial lending overdraft is no longer the main channel for the base money. Second, the proportion of foreign exchange in the base currency has gradually increased. Since 1994, China has achieved a double balance of payments surplus. Generally speaking, the balance of payments surplus, the local currency is bound to appreciate. However, in order to keep the exchange rate of RMB against the US dollar stable, the central bank has to buy a lot of US dollars. However, the increase in foreign exchange reserves directly led to the increase in foreign exchange holdings. Foreign exchange has become an important channel for the supply of base money. It has been proved by data that the foreign exchange reserves have increased continuously since 1994, which makes the base currency more and more dependent on foreign exchange. During the period from 1994 to 1997, more than half of the base currency was invested in foreign exchange. 1998, the rapid decline in the growth rate of foreign exchange reserves led to the blockage of the base currency. February 1998 The base currency decreased by 600 million yuan. On May 26th, 1998, the central bank resumed the open market business of national debt repurchase stopped at 1997, and the speed of policy adjustment was more than one quarter behind. Excluding the reform of the deposit reserve system, the base currency 1998 increased by 332.3 billion yuan, which was 48.2 billion yuan lower than that of 1997. M2 of broad money increased by 15.3%, which was 2 percentage points lower than that of 1997. Due to the sharp decrease of foreign exchange, the decrease of base currency has aggravated deflation to some extent. Since 1999, in view of the rapid decline in the growth rate of foreign exchange reserves and foreign exchange holdings in 1998, the central bank has increased its efforts to invest in the base currency. For example, the foreign exchange account of101300 million yuan increased, while the foreign exchange account of 1998 only increased by 44 billion yuan. (See the table below) After 2000, foreign exchange accounted for a steady increase.

Table11changes in foreign exchange holdings from 994 to 2002

Outstanding foreign exchange funds

Source:

1, edited by Dai Xianglong: China Monetary Policy Report (1999), China Financial Publishing House; Statistical Quarterly Report of the People's Bank of China, 200 1,No. 1.

2.200 1 and the data of 2002 are from the monetary policy implementation report of the People's Bank of China in 20001and 2002.

It can be seen that foreign exchange has become one of the main channels for China's base currency. With the increase of bank deposits in China, the role of refinancing is gradually decreasing. Compared with other ways of putting money into the market, such as adjusting deposit reserve and open market operation in the money market, the importance of foreign exchange is also increasing. Among them, the adjustment of deposit reserve can not be used regularly, and the small scale and low development level of domestic bond market also weaken the effectiveness of open market operation. Therefore, according to the above analysis of several money delivery channels, it can be considered that foreign exchange will continue to play a major role in China's money supply in the future.

4. The base currency put into the foreign exchange account channel shortens the time lag of monetary expansion.

The base currency put into the refinancing channel can only generate derivative deposits through the following links: refinancing → loans from commercial banks to enterprises → conversion of enterprise loans into deposits → creation of derivative deposits.

In the above-mentioned links, there is an obvious time lag in the decision-making of commercial bank loans and corporate loans, and the existence of these two time lags will inevitably delay the transformation of the base currency to M 1 and M2. However, the foreign exchange account generated by the settlement and sale of foreign exchange is almost immediately converted into RMB deposits of enterprises at one time, so the time lag for this part of M0 to be converted into M 1 and M2 is much lower than that of the base currency put in the refinancing channel, which will lead to the rapid expansion of M 1 and M2, so that on the one hand, it can be put into local currency by purchasing foreign exchange, thus expanding the money supply; On the other hand, the purchase of foreign exchange increases the exchange rate of foreign exchange, thus realizing the relative depreciation of the local currency, enhancing the price competitiveness of domestic export products, and further promoting the growth of domestic exports, thus actually achieving the policy effect of killing two birds with one stone, which can be said to support the current monetary policy of the central bank to a great extent.

5. Changes in monetary investment.

The investment in the base currency invested through the foreign exchange account is single. When the bank settles foreign exchange, the money is the holder of this part of foreign exchange income, so it mainly flows to the areas with excess foreign exchange supply and demand in the region, mainly to the export departments of the industry. In economic life, the funds of these export-oriented enterprises far exceed those of other enterprises. At the same time, the central bank will hedge through contraction and refinancing, and the possibility of other enterprises obtaining funds will be further reduced, thus bearing part of the hedging costs. In this way, the monetary policy transmission mechanism of the central bank has changed, and the majority of non-export-oriented enterprises still have the problem of insufficient funds. The influence of foreign exchange increase on industrial structure;

The increase of foreign exchange has had a great impact on the industrial structure of China. Due to the existence of foreign exchange settlement and sale system, with the gradual increase of foreign exchange, it is easier for export-oriented enterprises in China to obtain sufficient RMB funds through foreign exchange settlement, so the development conditions of these enterprises are relatively relaxed, which greatly promotes their production. Mainly in the following aspects.

First of all, technicians and labor force are further transferred to export-oriented enterprises. This is because the operating rate of inward-looking enterprises is low, the demand for labor is decreasing day by day, and a large number of technicians are laid off, while export-oriented enterprises still have the trend of expanding production because of relatively abundant funds, which is bound to promote the flow of technicians and labor to export-oriented enterprises.

Secondly, a large number of raw materials are transferred to the Ministry of Foreign Trade. Export-oriented enterprises have abundant funds and can be in an advantageous position in the market of production materials, creating a good financial environment for them to buy raw materials and machinery and equipment at low prices in time. The low success rate strengthens the competitiveness of export-oriented enterprises' products and creates higher profits. This has formed a virtuous circle, which makes the export-oriented enterprises develop more rapidly. China's export-oriented industries are mainly engaged in processing trade by foreign-invested enterprises. The development of processing trade, on the one hand, has caused our country's trade dependence to be too high, which has caused our country's foreign trade export to lack the potential for sustained growth; On the other hand, it has impacted the development of domestic related raw material industries, which is not conducive to promoting the upgrading of domestic industrial structure. In processing trade, foreign-invested enterprises completely control the market and sales channels, strictly control key technologies, and leave most of their technology and product development capabilities abroad, while China only participates in simple processing and assembly.

In addition, some foreign-invested enterprises even transfer industries with low technical level and serious environmental pollution to China for production, which has brought disastrous consequences to China's environment. The pattern of processing trade is dominated by foreign-invested enterprises rather than state-owned enterprises, which leads to the failure to give full play to China's original huge industrial base and technical base, and also delays the upgrading of the whole processing trade and the improvement of domestic supporting degree, thus delaying the driving role of processing trade in the industrial structure. 1. moderately stimulate import demand

Increasing social supply The central bank should adjust the supply and demand of foreign exchange in time according to the changing trend of international payments, and suggest that the state appropriately reduce tariffs, tilt and guide the provisions on credit and foreign exchange sales, increase the supply of domestic short commodities by stimulating imports in a limited way, reduce the pressure of foreign exchange reserves on the central bank to adjust the money supply, reduce the stock of social money, and balance social supply and demand.

2. Reasonably determine the level of foreign exchange reserves

At present, the increasing foreign exchange reserves is an important reason for the increase of foreign exchange holdings in China. Therefore, a reasonable level of foreign exchange reserves should be determined to reduce the impact of foreign exchange reserves on the money supply. The level of foreign exchange reserves is a dynamic concept. Theoretically speaking, moderate foreign exchange reserves should be comprehensively considered in combination with national macroeconomic situation, balance of payments structure, macro-control of monetary policy and foreign exchange policy. It is generally believed that foreign exchange reserves should be able to cover three to four months of foreign exchange imports and about 65,438+00% of foreign exchange debt repayment. Based on this understanding, China's total foreign exchange reserves are not insufficient at present. The central bank should further coordinate monetary policy and foreign exchange policy, adjust foreign exchange receipts and payments in current account, control the growth of foreign exchange reserves, and make full use of macro-control means such as exchange rate lever, interest rate lever, foreign debt statistical monitoring system and balance of payments statistical reporting system to make a long-term analysis of the trends involving changes in national foreign exchange receipts and payments, and determine a reasonable level of foreign exchange reserves. At the same time, the central bank should strengthen the operation and management of national foreign exchange reserves according to the principles of safety, liquidity and appreciation, so as to avoid valuable foreign exchange resources being idle.

3. Gradually expand the scope of foreign exchange holding enterprises and the proportion of foreign exchange holding.

Under the current circumstances, although it is not feasible to completely replace compulsory settlement with voluntary settlement, we can gradually expand the scope of foreign exchange holding enterprises and the proportion of foreign exchange holding, and return foreign exchange to the people, so that the foreign exchange distribution structure that is excessively inclined to the central bank gradually tends to be reasonable. Furthermore, as a policy suggestion, we can consider the retention ratio of foreign exchange accounts as a special tool to control the total foreign exchange reserves by adjusting the proportion of foreign exchange held by foreign exchange accounts of enterprises and banks, so as to control the proportion of foreign exchange and achieve the effect of regulating the money supply. When the rapid growth of foreign exchange accounts leads to the rising pressure of money supply, the proportion of private foreign exchange holdings can be increased. On the contrary, when it is necessary to increase the money supply through foreign exchange reserves, the proportion of private foreign exchange reserves can be reduced. Through this improvement, it will help to develop the adjustment of foreign exchange holdings into a monetary policy tool to stabilize economic fluctuations.

4. Strengthen the central bank's ability to regulate the foreign exchange market.

The ultimate goal of monetary policy is to stabilize the value of local currency and promote economic development. In the case of a large amount of foreign exchange, the central bank should innovate foreign exchange hedging tools on the basis of issuing central bank bills, and pay attention to cooperating with other tools. In addition, it is necessary to change the pattern that the central bank has become the main buyer of the foreign exchange market, allow more financial institutions and foreign-funded enterprises to participate in the foreign exchange market, and make the foreign exchange market have extensive participation and efficient operation mechanism.