Study On Adequacy Of Foreign Exchange Reserve Of China

Since the Foreign Exchange System Reform in 1994,China's Foreign Exchange Reserve expanded rapidly. On one hand, this enhances our capacity of payment and interference in foreign exchange market, on the other hand, it means we abandoned the right to import industrial resources to improve our economy. Morever, under the present compulsory settlement system, the central bank has to supply equivalent RMB to the society, which brings some adverse influences on the currency supply, price and the economy. under this circumstances, it has important meaning to do some researching on the adequacy of china's foreign exchange reserve. This paper, firstly, defined the adequacy of foreign exchange and gave a qualitative analysis. Following this, Ratio Analysis Method and Cost-benefit Analysis Method were used to count China's adequate foreign exchange reserve. Besides these two methods, this paper constructed a new model according to the situation of our country and got a conclusion that China's foreign exchange reserve is too large. Causes analysis based on the balance of international payment shows that "double surplus "from current account and capital and finance account is the main cause of china's excessive foreign exchange reserve in recent years. Finally, this paper put forward some pertinent advice.