Research On Adequacy Of Foreign Exchange Reserve Of China

The foreign exchange reserves have kept a fast growth since the reform on the foreign exchange regime, by the end of 2006, the foreign exchange reserves have exceeded the Japan and ranked the top one in the world. Such substantive foreign exchange reserves have become the focus of home and abroad. On the 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. Moreover, 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 circumstance, 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, Factor Analysis Method was used to count China' s adequate foreign exchange reserves. Finally, this paper put forward some pertinent advice.