An Study On China's Foreign Exchange Reserves Based On The Perspective Of Global Imbalance

Nowadays there are more than 2 trillion U.S.D China's international reserves, China has been the country with the largest foreign exchange reverses in the world. Too much scale has great influence in our economic development. Increasing in foreign exchange reserves is equal to the sustained earnings of the international balance of payments. Such a huge reserve size means that management cost is skyrocketed and the lost of monetary policy flexibility of central bank. On one hand, due to our relatively fixed exchange rate regime, the central bank had to take sterilization policy to offset the increase in domestic liquidity, it's bound to cut down the flexibility of the monetary policy, and the sterilization policy is terminate, if the growth of the foreign exchange reserves is continuous, with the present exchange rate regime it's bound to the increase in domestic liquidity, inflation and so on; on the other hand, most of our reserves purchase the foreign government bonds, and the opportunity cost is enormous. The low-yield income of government bonds could not even make up the management cost, not to mention the huge exchange rate risk and credit risk, which has been against the risk equivalent to the return theory. The current issue of our international reserves is already imminent today, how to resolve it is our government's important task.To resolve the problem, firstly, we must analyze the deep-seated reasons of the accumulation of huge scale, and then adjust fundamentally to reverse the increasing tendency to return to the moderate scale; secondly, we should change the traditional concepts to strengthen the management of the international reserves, for example, to adopt a more flexible mechanism to cut down risk and increase revenue, starting from the national strategy for the use of foreign exchange reserves and so on. Ultimately the overflow of this huge wealth plays a great role in the national economy.This paper describes the development of foreign exchange reserves theory, observed from global imbalance perspective and internal imbalance perspective separate, we analyze how the huge international reserves accumulate. In the framework of the current international monetary system, we focus on the mutual relations of the expanding global imbalance, the global financial crisis and the surplus of our international balance of payments, and then illustrate the role of foreign exchange reserves. On the other hand, we explain the rapid development of the trade department, especially the processing trade department which is caused by internal imbalance after the exchange rate reform in 1994, and then we analyze the cycle of capital flows caused by internal saving-investment imbalance, promptly the funds flows out from China and flows into the financial system of developed country, and then return around in the form of FDI to complete the process of the saving into the investment. The international reserves not only are the results of imbalance, but also play an important role in the development of imbalance. We believe that to enhance the adjustment of the domestic imbalance is the only way that we should go to resolve the reserves problem.In the management of the foreign exchange reserves, we first review a number of academic debates in recent years, on this basis we raise that starting from the strategic perspective of the state, configure this large overflow wealth of the national economy in the broader area. We argue that adopting appropriate measures to lead this wealth into the national economic cycle, the huge international reserves will be major booster of our economic development in the future.