Foreign exchange reserve is a symbol of real resources, and it has opportunity cost. The opportunity cost of holding foreign exchange reserves is equal to the domestic capital productivity minus the rate of return on holding foreign exchange reserves. Because the safety of official reserve assets is the first priority, foreign exchange reserves of all countries are generally invested in short-term government bonds of reserve currency countries, and the yield is low (1-2% on average after World War II). This is equivalent to a country with a low level of economic development (usually a country with a large amount of foreign exchange reserves) exporting capital to a country with a high level of economic development (a reserve currency issuer). If China borrows a lot of foreign debts and holds huge foreign exchange reserves at the same time, it is tantamount to borrowing funds from abroad at a high price, and at the same time transferring domestic funds abroad for foreigners to use at a low price, and its potential losses are obvious. In fact, China borrowed a lot of foreign debts at a high cost in the 1980s and 1990s (at present, China's foreign debt balance is about US$ 6543.8+060 billion). Since the 20th century, major economies in the world have entered a period of low interest rates, and the return on investment in global financial markets is also in a downturn, which has reduced the return on investment in China's foreign exchange reserves. At the same time, holding foreign exchange reserves means temporarily giving up using a certain amount of actual resources, thus losing the domestic economic growth and income level brought about by investing these resources. This also highlights the cost of China's high foreign exchange reserves.

2. Inflationary pressure

As a financial asset, the change of foreign exchange reserves will naturally have a great impact on domestic financial operation. In fact, China has a fixed exchange rate pegged to the US dollar, so the People's Bank of China, as the central bank, plays the role of the final market liquidator in the foreign exchange market. The increase of foreign exchange reserves has increased the issuance of RMB, because the official reserves are purchased and held by the monetary authorities, and their corresponding reflection in the accounts of the monetary authorities is foreign exchange, which is the main component of China's basic currency. Since the exchange rate was unified from 65438 to 0994, the sustained and rapid increase of foreign exchange reserves has made foreign exchange holdings the main way for the central bank to invest in the base currency. The corresponding increase in foreign exchange accounts for the central bank's base money will lead to an excessive increase in the money supply, which will adversely affect the macroeconomic operation and financial situation and bring long-term inflationary pressure to China's monetary policy. Although China is still in the stage of deflation, its economic indicators have begun to improve, and the possibility of falling into inflation once it gets out of deflation cannot be ruled out. To this end, the central bank has adopted corresponding write-off policies: for example, frequent repurchase in the inter-bank bond market, and the People's Bank of China issuing bills to withdraw the base currency. According to incomplete statistics, in the first five months of 2003, the central bank has withdrawn more than 400 billion yuan from the base currency to slow down the growth of the base currency. However, due to the limited scale of China's money market, especially in the case that the circulation of central bank bills has exceeded 200 billion yuan, with the continuous increase of foreign exchange holdings, the space for the central bank to intervene in sterilization has become smaller and smaller. This has brought considerable trouble to the central bank: first, the stability of monetary policy has been challenged, and monetary policy is facing medium and long-term inflationary pressure. Second, due to the de facto integration of monetary policy and exchange rate policy, the policy allocation space for adjusting external equilibrium with exchange rate policy and internal equilibrium with fiscal and monetary policy will be lost, and it is difficult to achieve internal and external equilibrium at the same time. This is the typical Meade conflict faced by the central bank.

3. Increase the pressure of RMB appreciation.

Under the existing RMB exchange rate system, if the central bank does not have effective assets to hedge excessive foreign exchange holdings, the rapid increase of foreign exchange reserves will promote the continuous appreciation of the RMB. Recently, not only Japan, the United States and other countries are vigorously advocating the appreciation of the renminbi, but also the funds that fled in the past are showing signs of returning. Even if international hot money "sneaks into China", the RMB will face the pressure of appreciation. At present, export is the biggest driving force for China's economic growth, and the weakening of export competitiveness will directly affect the growth rate of the national economy and the sustainable development of China's economy, so it is not appropriate for RMB to appreciate significantly at present. From this perspective, foreign exchange reserves should not be too much.

4. Increased the difficulty and risk of reserve asset management.

In today's financial globalization, due to the rapid and large-scale flow of international capital, interest rates and exchange rates in financial markets fluctuate violently. As a national wealth, foreign exchange reserves will face great risks if they are too large, and high foreign exchange reserves will bring difficulties to the management of maintaining and increasing the value of reserve assets. Because a considerable part of China's foreign exchange reserves exist in the form of dollar assets, in the past year or so, the exchange rate of the dollar against the euro has risen and fallen by more than 30%, and the value of the dollar has continued to fall, making it inevitable that China's foreign exchange reserves, which account for a large proportion of the dollar, will shrink; If roughly calculated according to 60% of the US dollar foreign exchange reserves, about 654.38+080 billion US dollars of foreign exchange reserves are experiencing "book" losses. In addition, in the past two years, the return on investment in global financial markets has been in a downturn. Since 200 1, the Federal Reserve has cut interest rates 13 times, and the federal funds rate has now dropped to 1%, which is at a historical low in 45 years, which also makes the investment income of China's foreign exchange reserve assets decrease continuously. The larger the scale of foreign exchange reserve assets, the more difficult it is to maintain and increase the value.