Foreign exchange reserves are not large, but there are advantages and disadvantages, as follows: negative impact: 1. Damage 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 economic growth. 2. Bring interest margin 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 is 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 shrink seriously. 3. The opportunity cost is greatly lost. China introduces about 50 billion dollars of foreign capital every year, so the state should provide many tax incentives; At the same time, China holds more than 1 trillion dollars of 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 concessional loans. Excessive foreign exchange reserves will make China lose 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 China. 6. Accelerate the inflow of hot money and trigger or accelerate domestic inflation. 7. The dynamic structure leading to economic growth is unbalanced. The high foreign exchange reserves lead to an imbalance in the dynamic structure of economic growth, which is not conducive to the transformation of economic growth into a domestic demand-oriented model. 8. Excessive liquidity caused by excessive foreign exchange reserves is an important reason for excess liquidity, which affects the efficiency of bank capital use and aggravates the imbalance of economic structure. The so-called excess liquidity problem means that the money supply is too large. The functions of foreign exchange reserves mainly include the following four aspects: First, adjust the balance of payments and ensure external payment. Second, intervene in the foreign exchange market and stabilize the local currency exchange rate. Third, maintain international reputation and improve financing capacity. Fourth, enhance comprehensive national strength and resist financial 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.