Negative Effects Analysis Of China's Foreign Exchange Reserve Increase

Foreign exchange reserve is important to an open economic system.It is used to balance the account deficit in international income and expenses,to intervene foreign exchange market,to stabilize home currency value,to pay foreign debt and to maintain public confident.However,too much foreign exchange reserve is not good for a country. Recently there are many discussions about the foreign exchange reserve in China,there are many studies about the relationship between inflation,revaluation pressure,costs and the huge foreign exchange reserve,Based on early studies,this article mainly analyses the negative effect of China's ever increasing foreign exchange reserve.Firstly,this paper gives the reasons for foreign exchange reserve increase,and reveal problems hide in these reasons.Secondly,through theoretical analysis and empirical testing,this paper discovers that the foreign exchange reserve increase has lead negative effects to monetary policy,price level,foreign exchange rate of RMB,regional disparity,etc.This article also evaluates how much pressure it has given to the inflation,the appreciation of RMB and the holding costs of the government,banks and domestic residents.