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1. High foreign exchange reserve cost
Foreign exchange reserve is a symbol of actual resources, and its holding 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 various countries are generally invested in short-term government bonds of reserve currency countries, and their yields are 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 (the issuing country of reserve currency). 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 also transferring domestic funds abroad for foreigners to use at a low price, its potential losses are obvious. In fact, China borrowed a large amount of foreign debt at a high cost in the 198s and 199s (at present, China's foreign debt balance is about $16 billion). Since the 21st century, major economies in the world have entered a period of low interest rates, and the investment yield of global financial markets is also in a downturn, which has reduced the investment yield of China's foreign exchange reserves. At the same time, holding foreign exchange reserves means temporarily giving up the use of a certain amount of actual resources, thus losing the domestic economic growth and income level caused by putting these resources into it. 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 implements a fixed exchange rate arrangement 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 unification of exchange rates in 1994, the sustained and rapid increase of foreign exchange reserves has made foreign exchange holdings the main way for the central bank to put in the base currency. Foreign exchange accounts for a corresponding increase in the central bank's base money, which leads 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, the economic indicators have begun to improve, and the possibility of falling into inflation once we get 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 issuance of bills from the People's Bank of China to withdraw the base currency. According to incomplete statistics, in the first five months of 23, the central bank has withdrawn more than 4 billion yuan from the base currency, so as to slow down the growth rate 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 2 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 troubles 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 of adjusting external equilibrium with exchange rate policy and internal equilibrium with fiscal and monetary policies will be lost, and it is difficult to achieve internal and external equilibrium at the same time. This is the typical Meade's 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 RMB. Recently, not only Japan, the United States and other countries are strongly advocating RMB appreciation, but also the funds that fled in the past have shown signs of returning. Even international hot money "sneaked into China", and the RMB is under pressure to appreciate. At present, export is the biggest driving force of China's economic growth, and the weakening of export competitiveness will directly affect the growth rate of 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 assets management
In today's financial globalization, due to the rapid and large-scale flow of international capital, the interest rate and exchange rate in the financial market fluctuate fiercely. As a national wealth, the excessive scale of foreign exchange reserves will also put the national wealth at great risk, and the high foreign exchange reserves will bring difficulties to the management of reserve assets. Because a considerable part of China's foreign exchange reserves exist in the form of US dollar assets, in the past year or so, the exchange rate between the US dollar and the euro has risen and fallen by more than 3%, and the value of the US dollar has continued to fall, which makes it inevitable that China's foreign exchange reserves with a large proportion of US dollars will shrink; If roughly calculated according to 6% of the US dollar foreign exchange reserves, about 18 billion US dollars in foreign exchange reserves are suffering from "book" losses. In addition, in the past two years, the rate of return on investment in global financial markets has been in a downturn. Since 21, the Federal Reserve has lowered interest rates for 13 times, and the federal funds rate has now dropped to 1%, which is at a historical low in 45 years, which has also reduced the investment income of China's foreign exchange reserve assets. The larger the scale of foreign exchange reserve assets, the more difficult it is to maintain and increase its value.
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In short, the scale of foreign exchange reserves should be moderate, not the more the better. We should fully realize the negative impact brought by the rapid growth of foreign exchange reserves on the economy. In order to properly control its growth scale, we can take the following countermeasures:
1. Increase imports and speed up the adjustment of industrial structure
Encourage commercial banks to increase US dollar loans to enterprises and support domestic enterprises to import advanced technology and equipment.
2. Carry out the willingness to settle and sell foreign exchange and improve the basis for determining the RMB exchange rate
We should further relax the restrictions on foreign exchange under the current account, including the restrictions on foreign exchange exchanges such as travel and study abroad, gradually abolish the mandatory bank settlement and sale system, implement the willingness to settle and sell foreign exchange and improve the basis for determining the RMB exchange rate.
3. Expand the floating range of RMB and improve the RMB exchange rate formation mechanism
Promote the marketization process of RMB exchange rate formation mechanism, expand foreign exchange trading entities, liberalize major foreign trade enterprises to enter the foreign exchange market, increase the scale of foreign exchange transactions, reduce the frequency of central bank intervention in the market, and relax the fluctuation range of RMB exchange rate, and implement a truly "market-based, managed floating exchange rate" mechanism.
4. Gradually deregulate capital account and allow residents to invest abroad
Deregulation of capital account mainly refers to gradually reducing the choice of capital outflow to encourage more domestic enterprises to invest abroad, which actually means that China's overseas assets have undergone a certain transformation between the government and the private sector, which is not only conducive to reducing the risk of foreign exchange reserves borne by the government, but also conducive to improving national income (because the rate of return of private overseas investment is usually higher than that of official reserves).
5. Strengthen international monetary cooperation and sign regional multilateral currency swap agreements
In a sense, close international monetary cooperation can greatly reduce a country's foreign exchange reserves. Because, on the one hand, signing bilateral trade between member countries with regional monetary cooperation can reduce the foreign exchange reserves held to balance trade balance; On the other hand, currency swap can also be used to finance member countries with short-term external payment difficulties in the region, which also reduces the level of foreign exchange reserves held to prevent financial crises or emergencies. Therefore, regional monetary cooperation can effectively reduce the holding level of foreign exchange reserves of developing country members.