1 is conducive to maintaining the external reputation of the country and enterprises, increasing the confidence of foreign investors, accelerating the attraction of foreign investment, alleviating the pressure brought by domestic deflation, and ensuring the rapid and healthy development of the macro economy. Foreign exchange reserves have a "reassuring" effect. The adequacy of foreign exchange reserves reflects a country's ability to pay abroad and is one of the hard indicators to measure a country's economic strength. In the international financial market, foreign exchange reserves are a credit indicator, and abundant reserves are a symbol of wealth possession, which subjectively and objectively stabilizes the international reputation of the local currency and enhances investors' confidence in the national economy.
2. It is conducive to coping with outstanding events, smoothing the fluctuation of international payments, effectively preventing and defusing international financial risks, and ensuring the safe operation of China's economic system reform. Facts have proved that when the local currency and exchange rate fluctuate abnormally, we can use China's reserves, affect the relationship between supply and demand in the foreign exchange market, and keep the exchange rate fluctuation within the allowable range at home and abroad, thus ensuring China's financial security and promoting the stable and prosperous development of the economy.
It is beneficial to foreign direct investment. At present, it is no longer desirable to rely solely on reducing costs and expanding export scale. China must properly guide the traditional export enterprises, change the foreign trade growth strategy, change the way of foreign trade work, encourage enterprises to enhance their confidence, expand foreign investment, and improve the international competitiveness of China enterprises by "going out, please come in".
Disadvantages of high foreign exchange reserves:
1. Excessive foreign exchange reserves will inevitably increase the domestic base money. With the increase of foreign exchange reserves, a country has to issue more domestic currency, which increases the basic supply of domestic currency, forms and intensifies the situation of domestic inflation and has a negative impact on its economic development. However, the increase of the base money has promoted the excessive growth of money and credit, triggered a series of problems such as investment expansion and inflation, increased the fragility of the banking system, and finally affected the effectiveness of macro-control. In order to eliminate this negative impact, the central bank will issue domestic bonds at a certain cost, which is far greater than the income brought by the increase of domestic reserves, thus forming the management cost of foreign exchange reserves. The higher the foreign exchange reserves of a country, the higher the management cost.
2. The increasing foreign exchange reserves have increased the pressure of RMB appreciation, and it is becoming more and more long-term. China's ever-increasing foreign exchange reserves make the supply of RMB in short supply, which increases the pressure of RMB appreciation. However, the appreciation of RMB will seriously affect the export competitiveness of China products, especially at present, export is the main power source of China's economic growth, and China's dependence on foreign trade has risen to more than 60%. The weakening of export competitiveness will not only directly affect the economic growth rate of China, but also greatly affect the employment placement of domestic labor force. Practice in recent years has proved that the rapid growth of foreign exchange reserves will also lead to excessive international concerns about China's foreign trade surplus and RMB appreciation, which will easily lead to more trade disputes and frictions.
3. Risks of foreign exchange reserves. The asset operation of foreign exchange reserves pursues the principle of organic combination of safety, liquidity and effectiveness, with safety as the first element, which determines that China's foreign exchange reserves mainly invest in the international market, which is the embodiment of high credit rating in the international market. According to the statistics of the U.S. Treasury Department, in February 2004, China's reserves of purchasing dollar assets accounted for more than 63% of the total foreign exchange reserves. It can be seen that China's foreign exchange reserves are mainly invested in US Treasury bonds, which brings two related problems: First, the US dollar has shown a weak development trend in recent years, the exchange rate has fallen, and the US dollar has continued to depreciate. In 2004, the depreciation of the US dollar against the Euro exceeded 10%, so the US dollar assets of China's foreign exchange reserves will shrink accordingly, resulting in huge losses. Second, more than half of China's foreign exchange reserves have been purchased by US Treasury bonds, which is objectively easy to be controlled by others. Under the general pattern of economic globalization, once there is a major international storm, the United States can freeze the huge dollar bonds in our hands to sanction and retaliate against China, and China has to guard against it. (1) Foreign exchange reserves, also known as foreign exchange reserves, refer to the foreign exchange part of the international reserve assets held by a government, that is, the creditor's rights held by a government in foreign currency. It is an asset held by the national monetary authority and can be converted into foreign currency at any time. In a narrow sense, foreign exchange reserves refer to a country's foreign exchange accumulation; Broadly speaking, foreign exchange reserves refer to assets denominated in foreign exchange, including cash, gold and foreign securities. Foreign exchange reserve is an important part of a country's international liquidity, which has an important influence on balancing international payments and stabilizing exchange rate. (2) Functions of foreign exchange reserves: First, adjust the balance of payments and ensure external payment. The second is to intervene in the foreign exchange market and stabilize the local currency exchange rate. The third is to maintain international reputation and improve external financing ability. The fourth is to enhance comprehensive national strength and ability to resist risks. A certain foreign exchange reserve is an important means for a country to adjust its economy and achieve internal and external balance. When the balance of payments is in deficit, the use of foreign exchange reserves can promote the balance of payments; When the domestic macro-economy is unbalanced and the total demand exceeds the total supply, foreign exchange can be used to organize imports, thus adjusting the relationship between total supply and total demand and promoting macroeconomic balance. At the same time, when the exchange rate fluctuates, foreign exchange reserves can be used to intervene in the exchange rate to stabilize the exchange rate. Therefore, foreign exchange reserves are an indispensable means to achieve economic balance and stability, especially when economic globalization is developing and one country's economy is more susceptible to the influence of other countries' economies. Generally speaking, increasing foreign exchange reserves can not only enhance macro-control ability, but also help to maintain the international reputation of countries and enterprises, expand international trade, attract foreign investment, reduce the financing cost of domestic enterprises, and prevent and resolve international financial risks. The appropriate level of foreign exchange reserves depends on many factors, such as import and export, the scale of foreign debt, and the actual utilization of foreign capital. (3) At the end of June 2008, China's foreign exchange reserves were US$ 654.38+808 million. The more real foreign exchange reserves a country has, the better, and the less false foreign exchange reserves it has. The real foreign exchange reserve is the wealth of the country, and the false foreign exchange reserve is the tool for the country to continuously convey wealth. (4) Excessive foreign exchange reserves will have many negative effects on economic development. 1, damaging the economic growth potential. The inflow of foreign exchange reserves of a certain scale represents the outflow of physical resources of a corresponding scale, which is not conducive to a country's economic growth. 2. It has brought great price difference loss. If the dollar depreciates, the country's reserve assets will also shrink seriously. The opportunity cost is greatly lost. On the one hand, the state's fiscal revenue is reduced, on the other hand, the people are frugal and lend money to foreigners, and its potential opportunity cost cannot be ignored. 4. Weakened the effect of macro-control. Under the current foreign exchange management system, the central bank has unlimited responsibility to buy back foreign exchange funds, so with the growth of foreign exchange reserves, the amount of foreign exchange has been increasing. 5, affect the use of international preferential loans. Excessive foreign exchange reserves will make China lose the preferential loans from the International Monetary Fund. (5) The basic functions of foreign exchange reserves are to pay for international trade, repay foreign debts, safeguard and maintain monetary and exchange rate policies, guard against external shocks, and respond to the impact of disasters and emergencies on monetary stability.