Analysis about Lower Growth Rate of Foreign Exchange Reserve's Impact on Domestic Money Supply

Under the New Normal Economy, GDP is no longer guaranteed 8 % in China, and the potential growth rate will gradually decline to 7.5 %, macroeconomic policy will no longer use the past type of stimulus control, the economy wont adopt monetary-driven growth model which was frequently used before. Despite the fact that the total volume of foreign exchange reserves is still huge nowadays, with the acceleration of RMB internationalization, developed countries deleveraging one after another after the 2008 financial crisis and a increasingly stronger dollar, however, from the perspective of growth rate, foreign exchange reserves has already been on a path to declining. Based on the Balance Sheet of Central Bank, this article analyzes the impact of lowering growth rate of foreign exchange reserves on money supply. For our country, funds outstanding for foreign exchange are no longer the main monetary distribution channelmonetary policy will be more dependent on new liquidity adjustment tools such as MLF, PSL, SLO etc. This study can be conducted in two aspects, one from monetary base, the other money multiplier, and some reasonable strategies like dredging credit transmission channels to reduce the time lag effect are given at the end of this paper.