1994 After the reform of the foreign exchange system, under the managed floating exchange rate system, exchange rate changes are directly linked to the introduction of the base currency. At present, the exchange rate formation mechanism consists of three parts: enterprise settlement and sale of foreign exchange, bank settlement and sale position restriction and central bank market intervention. After 1994, the current account control will be gradually relaxed, and RMB current account convertibility will be realized before the end of 1996. At the same time, the compulsory foreign exchange settlement and sale system has been implemented for enterprises, and the proportion of foreign exchange assets held by enterprises has declined; Due to the limitation of the position of foreign exchange settlement and sale and the influence of foreign exchange settlement and sale by enterprises, commercial banks have reduced the sources of foreign exchange funds. Because enterprises and commercial banks lack the ability to adjust foreign exchange assets, and in order to stabilize the exchange rate at the target level, when the supply of foreign exchange exceeds demand, the central bank must intervene in the foreign exchange market by buying dollars on pallets to stabilize the exchange rate. At present, the central bank actually adopts the policy of pegging the nominal exchange rate. In order to realize this policy, the central bank frequently intervenes in the foreign exchange market. The main goal of this policy is to prevent the impact of exchange rate fluctuations on foreign trade and stabilize prices. The exchange rate reform in 1994 is an important part of macroeconomic reform, which eliminated the disadvantages of multiple exchange rates, promoted the rapid growth of China's exports for two consecutive years, and promoted the stability of finance and prices. However, since 1994, with the changes of many conditions in the economy, the effect of exchange rate policy has begun to be different. Among these changing conditions, it is important to: ① the improvement of economic openness and dependence on foreign countries; ② The convertibility of RMB has been gradually improved; ③ The difference between domestic and international interest rates has increased; ④ The inflow of foreign capital increased. Due to the change of the above conditions, it is increasingly difficult to achieve the established policy objectives by pegging the nominal exchange rate at present. Second, pegged exchange rate system and balance of payments 1, nominal exchange rate and real exchange rate At present, the primary policy goal of pegged nominal exchange rate is to ensure export capacity. 1994 After the reform of the foreign exchange system, the exchange rate of RMB against the US dollar was determined as 8.7 yuan. The direct purpose of the central bank's intervention in the foreign exchange market is to stabilize the exchange rate at this level. Since 1994, the main function of the central bank's substantial increase in foreign exchange holdings is to stabilize the nominal exchange rate. However, it is not the nominal exchange rate that determines the export capacity, but the real effective exchange rate. The depreciation of the real exchange rate will change the ratio of domestic demand to external demand and promote the increase of exports, while the appreciation of the real exchange rate will lead to the decline of export capacity. The so-called real exchange rate refers to the exchange rate level at home and abroad after deducting inflation factors; Effective exchange rate refers to the exchange rate level after weighted average of different export regions and settlement currencies. According to the estimation of the International Monetary Fund, the nominal effective exchange rate of China at the end of 1995 was basically maintained at the level of 1994, while the real effective exchange rate appreciated by nearly 5.5%. Since the merger of 1994, the real effective exchange rate has appreciated by more than 30%. Under the managed floating exchange rate system, the main factors affecting the real exchange rate changes in China include: 1, changes in imports and exports; 2. Net inflow of capital; 3. Changes in labor productivity of domestic export sectors, especially in wage expenditure factors; Import and export tax rate; 5. Relative changes of inflation at home and abroad. The intervention of the People's Bank of China in the foreign exchange market has basically ensured the stability of the nominal exchange rate; However, the People's Bank of China cannot directly control the changes of other factors that affect the real exchange rate. Since 1994, the inflow of foreign capital, the excessive wage growth in the export sector, the adjustment of export tax rebate policy and the high domestic inflation level have all formed the pressure to push up the real exchange rate. With the rise of the real exchange rate, the import and export situation has undergone important changes from the total volume and structure this year: from the total volume, foreign trade has changed from a large surplus to a basic balance; Structurally, general trade exports declined, while processing trade exports of foreign-invested enterprises increased. The above-mentioned changes in the import and export situation have an important impact on the balance of payments: first, due to the decline in the proportion of trade balance in the balance of payments, the impact of capital account on the balance of payments and exchange rate will increase; Secondly, the decline of general trade shows the relative shrinkage of domestic tradable goods sector; Third, the expansion of processing trade will increase the possibility of price transfer and the difficulty of capital control. /kloc-since 0/994, the main form of neutralization operation of the People's Bank of China has been to recover commercial banks' refinancing. At the same time, the central bank also adopted the special deposits and issued central bank financing bonds. In the aspect of introducing foreign capital, project investment was introduced selectively, and the control under capital was strengthened; In terms of foreign debt management, since 1995, foreign medium and long-term commercial loans have not been increased, but the policy of converting foreign exchange reserves into deposits has been changed, and some foreign loans with higher interest rates have been repaid in advance. The above measures have eased the pressure of money supply brought by the balance of payments surplus. Since 1994, China's current financial structure has determined that China will take recovery and refinancing as the main neutralization means. At present, the level of deposit reserve is high, which is not suitable for raising the reserve ratio; Due to the reality of fiscal decentralization, the possibility of transferring fiscal deposits to the central bank is relatively small. Although the central bank can hedge foreign exchange holdings through central bank financing bills, it is also limited by financial costs. The reason why the central bank takes the recovery of refinancing as the main neutralization means is that 1 refinancing accounts for a high proportion of the central bank's assets; Compared with financial overdraft and policy loan, refinancing is more controllable and flexible. The effectiveness of the neutralization policy mainly depends on whether the fiscal policy can be adjusted accordingly, except that the characteristics of refinancing itself are not suitable as a means of neutralization policy.