| Long-term imbalance of international payments may lead to waste of resources and economic imbalance, so the status quo of China's huge foreign exchange reserve and future development is a matter of concern. Cost-benefit study of this has a positive significance.The quantitative analysis of international reserves includes ratio analysis, reserve demand function and cost-benefit analysis. Arrangements for exchange rate system has important relations with foreign exchange reserves, academics have a wide range of theories, including the theory of original sin, fear of floating theory, etc. McKinnon's theory on China's exchange rate system has it that China should maintain a stable long-term exchange rate.China has the world's largest international reserves. In 2008 it rose to nearly two trillion U.S. dollars. Growth of China's reserves have experienced four periods. The rapid growth of reserves is influenced by the policy-oriented factors, non-flexible exchange rate system and the expectation of appreciation.The cost of international reserves mainly consists of opportunity cost, accounting costs, associated costs and the marginal cost. The benefit of China's reserves has a one-to-one correspondence with the cost.This paper carries out a general comparative analysis and quantitative analysis of the cost According to the costs and benefits of reserves, with the conclusion that cost of reserves is much larger than the benefits. The qualitative analysis includes the scale, pace of economic development, foreign dependence, the return of foreign direct investment income, etc.The empirical analysis firstly uses the ratio analysis as a comparison and reference. Then it integrates the factor analysis and of cost-benefit analysis to study the demand for reserves. It use the method of pre-assumptions and projections, assuming the first time period has a reasonable amount of reserve, then use the results of regression to forecast the result of the later period, compare it with the actual reserves, with the conclusion that the actual reserves grow faster.The study of reserves can not ignore the impact of exchange rate system. Non-free floating exchange rate system often needs a big amount of reserves, while a free exchange rate may lead to the loss of reserves and an impact on the real economy. The internationalization of RMB can avoid the crisis and the risk of wealth loss, China's ample amount of reserves can be the basis of RMB internationalization.Huge reserves need good management. We need to increase the convertibility of the RMB, add more flexibility into exchange rate system, reduce the intervention into foreign exchange market in the long term and eventually realize the internationalization of the RMB. We need to maintain the internal and external economic balance to control the excessive growth of reserves, Chinese enterprises need to accelerate changes to a new role, the Government reform the macro-economic management, make the domestic financial system sound, optimizing the balance of international payments. In further studies, the moderate scale of foreign exchange reserves in different market environments and exchange rate systems causes for concern. |
