China's Foreign Exchange Reserves, Rapid Growth In Money Supply

The foreign exchange reserve (FER) is the material guarantee of resistance international financial risk, and of vital importance in the area of international financial research. After Southeast Asia Financial Crisis, most of the countries have increased their foreign exchange reserve in case of financial crisis. It has been paid more attention to a country's FER.The FER of our country grows continually, especially since the foreign exchange administration reform in 1994. After Southeast Asia Financial Crisis, FER was growing violent from 144.959 billion US dollars in 1998 to 609.932 billion US dollars in 2004. It grew 206.681 billion US dollars in one year of 2004. By the end of June 2005, our country's foreign exchange reserve had already achieved 710.973 billion US dollars, ranked the second place, which was just after Japan who had 834 billion US dollars at the same time. On one hand, the large amount of foreign exchange reserve shows our country's power having been strengthened, which may improve our credit ability and the trust towards RMB in the world; which may also attract more foreign fund to our country, therefore promoting the development of our economy. On the other hand, the rapid growth of FER has also brought some problems to our country's economy growth. For instance, it increased our economy's reliance on the international capital to some extent and reduced our economy safety coefficient. At the same time, the demand of RMB increased greatly which broke the balance between demand and supply. As a result, the appreciate pressure of RMB was enhanced. Moreover, under current foreign exchange administration system, foreign currency welled up like the tidewater, with the majority of which is bought by the bank of our country. That is, purchasing foreign currency has already become one of the main channels of our Central Bank throwing high-powered money into circulation. To some extent, the quantity of Chinese Yuan being put into circulation is determined by the quantity of...