The Study On Sources And Sources Quality Of China’s Foreign Exchange Reserves

The foreign exchange reserves in our country have been greatly increasing since the structural reform of foreign exchanges was carried out when the market economy system was established in1994. The foreign exchange reserves of our country exceeded that of Japan in size for the first time in February of2006and have ranked the first in the whole world ever since. On one hand, the increase of foreign exchange reserves has positive effects; on the other hand, it poses difficulty on macro-control of our country. Even though the foreign exchange reserves of our country rank first in the world, once the export falls, China will take immediate measures to reverse this situation. According to Samuelson’s theory of international balance of payments stage, a country will not excessively worry about trade deficit if this country is a mature creditor nation. Just as Samuelson ever said, trade deficit might be a good thing for a country, because citizens of this country could import goods with lower prices and might live a better life. Why after China has accumulated such a huge foreign exchange reserves, we still haven’t entered the stage of being a mature creditor nation and reaping the fruits brought by trade deficit. The reason behind this is that:the foreign exchange reserves sources of our country are unstable and in inferior quality. The quality of foreign exchange reserves sources determines the autonomy of government’s regulation on foreign exchange reserve volume and macro-control. This paper offers advice of optimizing the quality of foreign exchange reserves sources, which will be used as a reference for the government to enhance the autonomy of government’s regulation on foreign exchange reserve volume and macro-control.On the basis of historical data, related researches and Samuelson’s theory of international balance of payments stage, this paper adopts qualitative analysis and quantitative analysis, as well as the method of comparison, factor analysis and cost profit analysis, to study the foreign exchange reserves sources and their quality. This paper also studies the factors that are affecting the quality of foreign exchange reserves sources, and offers advice of optimizing quality of foreign exchange reserves sources. Briefly, this paper follows the next procedures:Firstly, this paper starts with literature review on foreign exchange reserves. The writer finds that the majority of the present researches focus on the size of foreign exchange reserves, and only a small number of researches are about the foreign exchange reserves sources, and even fewer researches are studies on the quality of foreign exchange reserves sources. A very few researches on the quality of foreign exchange reserves sources appeared in the study of the size and structural management of foreign exchange reserves, which offers a new perspective for this research.Secondly, concerning the source of our country’s foreign exchange reserves, this paper mainly carries out quantitative analysis on data from annual international balance of payments account of China ever since market economy system was established in this country. This period is divided into several stages which are compared with the various stages of international balance of payments of Samuelson. The results show that there are differences and similarities between the international balance of payments stages in our country and other countries. General laws lead to similarities, and the special foreign trade transaction mode of our country leads to the differences."Double surplus" of International balance of payments is the source of foreign exchange reserves in our country, which also leads to the sustainable growth of it. Nevertheless,"double surplus" is excessively depending on foreign investment, thus the source of foreign exchange reserves in our country is unstable.Thirdly, this paper analyzes the quality of our country’s foreign exchange reserves sources. The quality of foreign exchange reserves sources depends on the difficulty and the cost of obtaining foreign exchange reserves. Since the difficulty of obtaining foreign exchange reserves is affected by various elements, some of which are difficult to be quantitatively analyzed, thus this paper mainly adopts qualitative analysis. And concerning the cost of obtaining foreign exchange reserves, this paper adopts cost profit method which combines qualitative and quantitative analysis together. The conclusion is:since our country lags behind those developed countries that are holding dominant positions in international economy and price determination, we pay high cost and gain low profit in foreign transactions, which leads to the inferior quality of foreign exchange reserves sources.Finally, this paper puts forward measures to optimize quality of foreign exchange reserves sources. According to Samuelson, the reason why countries could enjoy foreign trade deficit is that these countries who developed ahead of time own the abilities to distribute sources within international range and thus control the situation. And the countries that lagged behind in development need to pay much more effort in order to change the already existed situation. And in this process, it is necessary to make the fittest enterprises survive by introducing punishment and reward system to market, meanwhile the governments need to design appropriate policies to guide them by changing the enterprises’ costs.