Research On China's Foreign Exchange Reserves Scale

Foreign exchange reserve refers to foreign convertible currencies and other realizable financial assets owned by the government or monetary authorities of a country.It can be used or controlled by the monetary authorities at any time to balance international payments,intervene in the foreign exchange market and maintain exchange rate stability.A country will face economic and financial risks without enough foreign exchange reserves to meet those basic need.Of course,holding foreign reserves means giving up benefit from the capital invested in domestic production.So,profitability should be noticed to reduce opportunity cost under the premise that the risk is controllable.Since the reform and opening up,the scale of China's foreign exchange reserves has undergone a process of fluctuations,from 167 million US dollars in 1978 to 3.99 trillion US dollars in June 2013.At this time,scholars have said that the scale is too large.Our foreign exchange reserve management strategy should be more proactive.Affected by factors such as the appreciation of the US dollar and the outflow of foreign capital,the size of China's foreign exchange reserves has dropped to US $ 3.07 trillion at the beginning of 2019,which was basically the same as in 2011.That raised concerns that our foreign exchange reserves may be insufficient.So,will China face economic and financial risks caused by insufficient reserves ? This article analyzes the scale of China's foreign exchange reserves from the perspective of supply and demand.Based on the previous studies,the factors affecting the supply and demand of foreign exchange reserves were analyzed,and the basic demand(including transactional and security needs)and revenue needs of China's foreign exchange reserves was calculated using the proportional analysis method and the smooth intertemporal consumption model.Empirical results show that China 's foreign exchange reserves entered a moderate range in 2004 and their adequacy has continued to improve.After 2015,the difference between the supply of reserves and basic demand(revenue demand)has continued to decrease and the contradiction between supply and demand has increased again.Now,the security need have become the most important need.Currently,the internationalization of the RMB is still in its infancy and the role of the external economic rescue mechanism represented by the IMF is limited.That means China will rely on foreign exchange reserves for a long time to prevent economic risks.Factors such as the narrowed current account surplus and high short-term foreign debt levels have further increased the supply and demand pressures on China 's foreign exchange reserves.We may face the risk of inadequate reserves in the future.Finally,this article puts forward policy suggestions from the aspects of macro strategy,flow supply and stock management.China should adhere to the internationalization of the RMB and expand the flexibility of the RMB exchange rate.The management of stock foreign exchange reserves should be moderate.China should make up for the shortcomings of foreign trade,optimize the business environment and implement prudent supervision of external capital.Foreign exchange leveling funds should be created and the proportion of short-term foreign debt should be reduced.Finally,we should use some foreign exchange reserves for national strategy and the establishment of a complementary foreign exchange reserve pool.