1. The rapid growth of foreign exchange reserves has enhanced China's comprehensive national strength and enhanced China's international reputation.

Foreign exchange reserve is an important indicator of a country's comprehensive national strength. The scale of China's foreign exchange reserves ranks first in the world, which indicates the enhancement of China's ability to pay and adjust the international balance of payments, provides a reliable guarantee for China to borrow foreign debts and repay the principal and interest of debts, and lays a solid foundation for maintaining China's good international reputation, attracting foreign investment and striving for international competitive advantages.

2. Adequate foreign exchange reserves can enable the Bank of China to effectively intervene in the foreign exchange market and support the local currency exchange rate.

Adequate foreign exchange reserves can ensure that China can cope with sudden financial risks calmly and meet the needs of effectively intervening in the foreign exchange market and maintaining the stability of the local currency exchange rate. 1997 The good performance of RMB after the Asian financial crisis once again proves the important role of adequate foreign exchange reserves in stabilizing the value of RMB and maintaining investor confidence.

Adequate foreign exchange reserves have effectively promoted domestic economic development.

First, sufficient foreign exchange reserves can improve China's external financing ability, reduce the financing cost of domestic institutions entering the international market, encourage domestic enterprises to "go global" and seek a better investment environment and greater profit space; Second, adequate foreign exchange reserves can play an important role in deepening economic reform, adjusting industrial structure and improving production technology. With China's accession to the WTO, the development of foreign trade has been greatly accelerated, and sufficient foreign exchange reserves can meet the needs of importing advanced technology and equipment; Third, it can meet the normal foreign exchange needs of residents to a greater extent.

Adequate foreign exchange reserve is also a necessary condition for RMB to be fully convertible.

The convertibility of RMB is the primary goal of China's foreign exchange system reform. 1At the end of 1996, China realized the convertibility of RMB under current account. China has abundant foreign exchange reserves, which ensures that China can meet the exchange demand that may occur at any time, keep the exchange rate in the foreign exchange market relatively stable, resist the risks brought by currency exchange and weaken its possible negative impact. After the current account is freely convertible, our goal is to cancel the foreign exchange control of current account and capital account and not restrict normal international exchange activities and capital flows, so as to realize the full convertibility of RMB. Adequate foreign exchange reserves enable the central bank to effectively regulate the foreign exchange market, maintain the basic balance of international payments, and maintain the basic stability of the exchange rate during the free convertibility of RMB.

negative impact

1, which increased the pressure of inflation and affected the independent formulation of monetary policy by the monetary authorities.

In recent years, the base currency in the form of foreign exchange has become the main channel for the central bank to put money. As foreign exchange reserves are increasing year by year, in order to maintain the stability of the foreign exchange market, the central bank must buy foreign exchange in the foreign exchange market and sell local currency. Through the money multiplier effect, the money supply is enlarged, which not only affects the independence of monetary policy, but also causes inflationary pressure. The central bank's hedging tools are still limited, and the hedging effect is not obvious. Therefore, if foreign exchange reserves continue to grow at a faster rate, inflationary pressure will continue to increase.

2. The dynamic structure that leads to economic growth is unbalanced, which is not conducive to the transformation of economic growth to domestic demand-oriented mode.

The formation of China's high foreign exchange reserves is mainly caused by the government's policy factors such as encouraging exports and attracting investment, and the expectation of RMB appreciation. Continuing to maintain this economic growth structure, which is mainly driven by export and investment, will not only hinder the realization of Scientific Outlook on Development's goal of building a resource-saving and environment-friendly society, but also damage the potential and stamina of economic growth, which is not conducive to the healthy and sustainable development of the economy.

3. It increases the pressure of RMB appreciation, which is not conducive to the smooth development of foreign trade.

The huge foreign exchange reserves have increased the pressure of RMB exchange rate appreciation, and to some extent, China has been caught in a dilemma between reducing the pressure of RMB appreciation and restraining the growth of money supply: In order to reduce the impact of excessive issuance of base money caused by foreign exchange, the People's Bank of China must increase its efforts to withdraw cash or raise interest rates, but these operations will increase the pressure of RMB appreciation; If we increase the money supply or lower the interest rate in order to reduce the pressure of RMB appreciation, the already extremely loose money market will become excessively loose, thus stimulating the bubble expansion of the domestic asset market. China may fall into a vicious circle of "rapid growth of foreign exchange reserves-expectation of RMB appreciation-capital inflow-sustained growth of foreign exchange reserves-further appreciation and capital inflow".

In addition, the rising foreign exchange reserves will further aggravate the trade friction and worsen the imbalance of international payments, which is not conducive to the sustainable development of China's foreign trade and economy.

4. Bring high opportunity cost, increase the risk of capital gains and exchange rate risk.

A country holds foreign exchange reserves, that is, it stores these resources, giving up and sacrificing the opportunity to use their investment will form a kind of loss in economy, which is also the opportunity cost. The more foreign exchange reserves a country has, the higher the opportunity cost.

As the main asset of China's foreign exchange reserves, the exchange rate fluctuates frequently, and the high foreign exchange reserves may bear the risk of dollar depreciation.

5. It has become an important reason for excess liquidity, which affects the efficiency of bank's capital use and aggravates the imbalance of economic structure.

The huge trade surplus is converted into RMB funds through foreign exchange settlement and enters commercial banks. As a base currency, large-scale investment in foreign exchange accounts for multiple expansion of money supply under the mechanism of money multiplier, which makes the market liquidity expand rapidly. This factor is related to the increasing scale of deposits and losses of commercial banks and the flooding of liquidity in the money market. Perhaps the more serious problem is that excess liquidity will also lead to a series of negative consequences such as falling corporate profits, overheated investment and inflation.