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The Liquidity Effect Study of Balance of Payments

The problem of excess liquidity is a prominent issue in China
Submitted On: 04-01-2010 | Views:	Article Tools:

The problem of excess liquidity is a prominent issue in China's economic. In 2003, the People's Bank of China began using a combination of monetary policy tools to control excess liquidity. And in 2007, the report of People's Bank of China said, the management of liquidity was still the main issue. China is still under the pressure of international balance of payments surplus. Meanwhile, in an open economic system, international payments have a great influence on the domestic liquidity. After exchange rate reform of RMB in 1994, great changes have taken place in international payment situation, and its effects on liquidity have become more and more obvious. Especially after 2002, steady surplus of international payment not only causes the fast accumulation of foreign reserves, which increases the pressure on RMB appreciation; but also leads to the rapid growth of domestic money supply, causing over-heated economy. Under this background, the purpose of this dissertation is to analyze excess liquidity from the viewpoint of the international payments. This dissertation analyzes this problem deeply from theoretical and empirical aspects.On the basis of the concept of liquidity and excess liquidity, this dissertation gives a detailed analysis of the problem of excess liquidity from the viewpoint of the international payments: First, describes the theory expounded in the floating exchange rate, China's fixed exchange rate and a managed floating exchange rate system under the international balance of payments impact on liquidity of the theoretical model; At the same time explore the international transmission mechanism of international balance of payments; Followed by the financial crisis in Southeast Asia, Mexico's financial crisis, Japan's bubble economy, such as cases of international balance of payments situation analysis, by the international balance of payments effects of the flow of international experience; Then through the mobility of China's international balance of payments effects of the empirical analysis of China's economic operation of the excess liquidity reasons, that the surplus liquidity of foreign exchange reserves mainly due to the rapid growth; and the rapid growth in foreign exchange reserves, is a reflection of the balance of payments imbalances. Then give the international balance of payments effect on the flow of a detailed analysis. The final , put forward China's economic operation to solve the problem of excess liquidity of some of the views and recommendations.

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