Foreign exchange reserve, also known as foreign exchange reserve, refers 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.

The specific forms of foreign exchange reserves include: short-term government deposits abroad or other means of payment that can be cashed abroad, such as foreign securities, checks, promissory notes, foreign currency drafts of foreign banks, etc. It is mainly used to pay off the balance of payments deficit, intervene in the foreign exchange market and maintain the local currency exchange rate.

Development of foreign exchange reserves

In order to meet the needs of international payment, foreign exchange held by central banks and other government agencies is foreign exchange reserves. Together with gold reserves, special drawing rights and readily available funds in the International Monetary Fund, it constitutes the sum of a country's official reserves (reserve assets). The main purpose of foreign exchange reserves is to pay off the balance of payments deficit, which is often used to intervene in the foreign exchange market to maintain the exchange rate of the national currency. The main forms of foreign exchange reserves are short-term government deposits abroad and other means of payment that can be cashed abroad, such as foreign securities, checks, promissory notes and foreign currency drafts of foreign banks. For a long time after World War II, the main currency of foreign exchange reserves in western countries was the US dollar, followed by the British pound. After 1970s, Deutsche Mark, Japanese Yen, Swiss Franc and French Franc joined in. In the total international reserve assets, the proportion of foreign exchange reserves is increasing. The amount of foreign exchange reserves, to a certain extent, reflects a country's ability to cope with the balance of payments, which is related to the maintenance and stability of its currency exchange rate. It is an important indicator to show a country's economic, monetary and international balance of payments strength.

Functions of foreign exchange reserves

The functions of foreign exchange reserves mainly include the following four aspects:

First, adjust the balance of payments to 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. Foreign exchange reserves should be kept at a moderate level according to the comparison of income and cost and these conditions.

The price of foreign exchange reserves

As a symbol of a country's economic and financial strength, foreign exchange reserves are the material basis for making up its balance of payments deficit, stabilizing its exchange rate and maintaining its international reputation. For developing countries, it is often necessary to maintain foreign exchange reserves above the conventional level. However, the more foreign exchange reserves, the better. In recent years, the rapid expansion of China's foreign exchange reserves has had many negative effects on economic development.

1, which damages the potential of economic growth. 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. If the extraordinary growth of China's foreign exchange reserves continues, it will damage the potential of China's economic growth.

2. It has brought great price difference loss. According to conservative estimates, if you have 600 billion US dollars in foreign exchange reserves, the annual loss will be as high as 654.38+000 billion US dollars if the difference between the investment profit rate and the foreign exchange reserve yield is 2%. If the risk of exchange rate changes is taken into account, this potential loss will be even greater. In addition, most of the foreign exchange reserves of many countries are dollar assets. If the dollar depreciates, the country's reserve assets will also shrink seriously.

3. The opportunity cost is greatly lost. China will introduce about 50 billion US dollars of foreign capital every year, so the state will provide many tax incentives; At the same time, China holds about $600 billion in foreign exchange reserves, which are idle. In this way, 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. The rapid growth of foreign exchange not only restricts the effectiveness of macro-control since 2004, but also weakens the effect of macro-control structurally, further increasing the pressure of RMB appreciation, making the central bank's space for regulating monetary policy smaller and smaller.

5, affect the use of international preferential loans. Excessive foreign exchange reserves will make China lose the preferential loans from the International Monetary Fund. According to the regulations of the IMF, countries with sufficient foreign exchange reserves can not only enjoy preferential and low-interest loans from the IMF, but also provide assistance to other member countries with balance of payments difficulties when necessary. This is a waste for our country.

Principles of foreign exchange reserve management

1, maintain the currency diversification of foreign exchange reserves to spread the risk of exchange rate changes;

2. According to the needs of imported goods, services and other payments, determine the quantity and term structure of various currencies in the reserve and the proportion of various monetary assets;

3. When determining the form of reserve currency assets, we should not only consider the rate of return of reserve assets, but also consider liquidity, flexibility and security;

4. Pay close attention to the exchange rate changes of reserve currencies and adjust the proportion of reserve assets in different currencies in time or irregularly.

Therefore, the management principle of national foreign exchange reserves is "safety, flexibility, preservation and appreciation". The first is safety. Only under the premise of safety can there be a basis for maintaining and increasing value. However, since reserve assets are payment tools, they must be flexible if they are to be realized at any time, and both are indispensable. Of course, the security mentioned here is not only the prevention of currency exchange rate and interest rate risks, but also the prevention of liquidation, circulation and exchange risks. Therefore, in order to reduce the risk of reserve assets, when considering external payment, proactive measures should be taken to manage and operate reserves as financial assets. On the basis of maintaining the value, we should not only obtain the income of basic interest, but also strive to obtain higher investment income and realize the appreciation of reserve assets.

Attachment: China's foreign exchange reserves

China's foreign exchange reserves (excluding Hong Kong, Macao and Taiwan) are mainly composed of US dollar assets, which are mainly held in the form of US Treasury bonds and institutional bonds. At the end of February, 2006, Chinese mainland's foreign exchange reserves totaled US$ 853.7 billion (excluding Hong Kong and Macao), surpassing Japan for the first time and ranking first in the world. According to the data released by the central bank in 2007, China's foreign exchange reserves increased by $654.38+0357 billion in the first quarter of 2007, an increase of $79.5 billion year-on-year. The increase of foreign exchange reserves in the first quarter was close to 55% of that in 2006. By the end of March, the balance of China's foreign exchange reserves had reached US$ 654.38+202 million, a year-on-year increase of 37.36%.

As a national asset, Chinese mainland's foreign exchange reserves are managed by the China State Administration of Foreign Exchange under the People's Bank of China, and some actual business operations are carried out by the Bank of China.

1. Currency composition

The structure of China's foreign exchange reserves has not been clearly announced, and it is currently a state financial secret. According to the report of the Bank for International Settlements, the report of Reuters and the proportion of each currency in China's foreign trade balance, it is estimated that US dollar assets account for about 70%, Japanese yen is about 10%, and euros and pounds account for about 20%.

2. Structural reasons for foreign exchange reserves

China's foreign exchange reserve structure is dominated by US dollar assets for the following historical and international financial theoretical reasons:

1. The economic activities of reserve currency issuing countries should focus on the domestic economy. Although the United States accounts for a large proportion in international trade, compared with the huge GDP of the United States, the proportion is still very low, far below the corresponding indicators of Japan, Germany and Switzerland. The main economic activities of the latter three countries are export-oriented, and their currencies are easily disturbed by international capital flows and fluctuate greatly, which is not conducive to maintaining value;

2. Except the United States, the central banks of Japan, Germany and Switzerland refused to let their currencies play a more important role in the international financial market;

3. The US dollar is an international means of payment, a transaction intermediary and a means of value storage formed in history;

4. Two thirds of international trade is settled in US dollars;

5. Most wholesale transactions in the international financial market are conducted in US dollars, and the financial operations of central banks in various countries are mainly in US dollars;

6. The foreign exchange reserves of major countries are mainly US dollar assets;

7. International syndicated loans and most transactions in international bond markets are in US dollars or US dollar bonds.

3. Reserve cost

Due to the large amount of US dollar assets in China's foreign exchange reserve structure, China's foreign exchange reserves depreciated seriously during the period of sharp decline of US dollar after 2000. Some people think that the book loss of China's foreign exchange reserves in 2003 was about $20 billion, and in the first half of 2004 it was about $40 billion.

4. Liquidity risk

"The management of foreign exchange reserves particularly emphasizes safety and liquidity, which determines that foreign exchange reserves are mainly invested in bonds with high credit rating in the international market"; "China's foreign exchange is not some foreign cash placed there, but some high-yield, low-risk and very safe foreign bonds". However, about 60% of foreign exchange reserves, up to hundreds of billions of dollars, exist in the form of US Treasury bonds and bonds, which makes the liquidity of foreign exchange reserves insufficient and is threatened by Sino-US relations and the size of the US Treasury bond market.

5. Unconventional use

From June 5, 2004 to 10, the State Council used US$ 45 billion in foreign exchange reserves to replenish the capital of China Bank and China Construction Bank. This capital injection does not belong to the routine use of foreign exchange reserves. The Central Huijin Investment Co., Ltd., which was established in June 65438+February 65438+June 2003, assumed the role of executor.

6. Reserve scale

Some people think that the foreign exchange reserves of floating exchange rate countries should be about 10% of GDP, and the current level of foreign exchange reserves in China is obviously high. On average, the proportion of foreign exchange reserves in GDP of countries in the Asia-Pacific region is much higher than that of western countries. This phenomenon is not unique to China. The high foreign exchange reserves also help to maintain the stability of the financial market. Some people think that considering the serious bad debts of Chinese banks, it is not only necessary to appropriately increase foreign exchange reserves, but also the current level of reserves is too low.

The RMB exchange rate used to be pegged to the US dollar. With the imbalance of purchasing power parity between RMB and USD, and the global expectation of RMB appreciation against USD, a large amount of USD hot money poured into China to exchange RMB in order to buy cheap resources and gain exchange rate fluctuations. In order to maintain a fixed exchange rate, the Bank of China had to buy a lot of dollars, which aggravated the problem of China's foreign exchange reserves and led to the risk of inflation. Statistics show that in 2004, about $654.38+000 billion of hot money entered China through various channels. On July 2, 2005, KLOC-0/,the RMB exchange rate was changed to "a managed floating exchange rate system based on market supply and demand and adjusted with reference to a basket of currencies".