The Potential Risks Of China's Foreign Exchange Reserve And Their Solutions

Foreign exchange reserve not only guarantees the safety of a country's foreign trade but also plays a great part in the development of the domestic economy.In recent years, China witnesses a constant and rapid growth in her foreign exchange reserve. The reasons are as follows: Firstly, it is due to the development of China's national economy. Secondly, it is because of the compulsory implementation of the systems such as foreign exchange settling and selling and refunded tax on exports, which encourage exports, and other systems that encourage foreign investment. Thirdly, foreign funds rush into China for the purpose of speculating.Ample foreign exchange reserve is a sword with double blades. The risks of foreign exchange reserve are shown as follows: First, the risk in structure. Second, the risk in its amount exceeding of appropriate level. Third, the risk in its management. Fourth, China's foreign trade growth pattern reflects the risk accompanied by the huge foreign exchange reserve.Faced with the risks, we should settle the possible crisis by improving the management of foreign exchange reserve, reforming the system as well as the foreign trade polices. The foreign exchange reserve should be kept in a reasonable scale. Most importantly of all, the reserve should be brought into full play in safeguarding China's economic stability and producing more profits for the country.