China's Foreign Exchange Reserves, The Size Of Study

Since the 1994 reform of China's foreign exchange administration system, especially after entering the 21st century, its foreign exchange reserves have been growing fast. In 1993, the reserve was only 21.2 billion US dollar, and at the end of 2005, the number came all the way to 818.9 billion US dollar. By February 2006, China, with a reserve of 853.6 billion US dollar, surpassing Japan, became the largest foreign exchange reserve holder in the world. Seven month later, China saw its reserve hit 987.9 billion US dollar, only a stone's distance from 1000 billion. Suddenly, the issue of china's foreign exchange reserve becomes the focus of world's attention.Plenty of foreign exchange reserve serves to increase a country's payment ability, safeguard its financial security, and promote the country's international status. However, "the more, the better" principle does not always hold, the excess reserve will also bring negative effects to the economy. It is necessary that a country's reserve should keep pace with its development.Considering this, this paper has the scale of China's foreign exchange reserve as its subject. At first this paper introduces the general knowledge of foreign exchange reserve and its optimal level. And then, it summarizes the study methods and related theories associated with it. Referring to these studies, the author judges china's reserve scale, concluding that its reserve is far above the desired level. Based on the results, the causes of China's excess foreign exchange reserve and its negative influences are profoundly analyzed. In the end, the author puts forward practical advices to slow down the growing of China's foreign exchange reserve.