China's Foreign Exchange Reserves And Its Economic Impact Study

With the deepening progress of reform and opening up and the expansion offoreign economy and trade year by year，China’s economy has been keeping avigorous growth，as a result，our comprehensive national power is now among theworld’s highest. People in our country are enjoying the plentiful and substantialeconomic achievements that the economic growth brings, meanwhile, People’s Bankof China is accumulating large foreign exchange reserves due to a successive doublesurplus in international balance of payments, and the pouring of a great deal ofinternational hot money and a scientific floating exchange rate system based on thesupply and demand of its market as well as referring to a basket of currencies. Foreignexchange reserve is a key indicator that can be used to report a country’s economicdevelopment level and an important economic variable adopted to weigh a nation’scomprehensive strength. However, it doesn’t mean that the more foreign exchangereserves we have the better the economic environment will be. The moderate numberof the reserves should be held by a government according to the demand of foreigneconomic intercourse and economic development of it’s own countryThis paper regards the scale of the foreign exchange reserves of our nation as thestudy object，together with the economic data from1994to2011and the mutualrelations of each indicators，and it analyzes the source and the fluctuation of ourcountry’s foreign exchange reserves at first.The passage holds that the main sourcesof our country’s foreign exchange reserves consist of three elements，including thebalance of current account, the capital and financial account balance and theinternational hot money，and several minor factors such as the trade credit and foreigndebt.Next，the ratio analysis method is applied to analyze its current situation. Theconclusion that the level of the foreign exchange reserves in our country is too high isreached by analyzing both the ratio of foreign exchange reserves and imports and theproportion of the reserves and China’s foreign debt.Finally, We proposed the way to resolve the high foreign exchange reserves:moderately control the scale of foreign exchange reserves; improve the flexibility ofthe exchange rate mechanism; Balance of payments and reduce trade surplus; adjustthe currency structure; realizing the internationalization of the RMB and so on.