Abstract
For China’s inefficient foreign exchange market, as the foreign exchange market is difficult to clear in time, so the foreign exchange market pressure always exists. Therefore, the in-depth study and discussion of China’s foreign exchange market pressure issue has important practical significance. This paper applies Lance Girton and Don Roper’s monetary model of exchange market pressure to China’s experience. The purpose of this paper is mainly to test whether the excess supply of money in China can be absorbed by some combination of the change in exchange rate and the change in foreign reserves. The results of empirical analysis indicate that the basic theoretical proposition is accordant with the practice.
Highlights
Exchange rate and foreign exchange play a very important role in economic operation and development for a country
The results show that China’s foreign exchange market pressure is mainly absorbed by foreign exchange reserves, but the role of exchange rate does not seem to be significant
The empirical analysis suggests that the experience of China for the period from the first quarter, 2010 to the first quarter, 2017, provides a good example of the foreign exchange market in which the exchange market pressure of a country can be alleviated by combining change in one’s reserves with change in one’s exchange rates
Summary
Exchange rate and foreign exchange play a very important role in economic operation and development for a country. Since the reform and opening up, China’s exchange rate and foreign exchange management system has undergone a continuous reform process, and has initially realized the operation and management of marketization. Because China’s market economy system is not perfect, there are many imperfections in China’s exchange rate and foreign exchange system. This led to the long-term pressure of China’s foreign exchange market, and sometimes it even requires the strong regulation of the government to gradually release the pressure. The study and discussion on the problem of China’s foreign exchange market pressure have important practical significance.
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