Macroeconomic Effects Of Foreign Exchange Reserves

Because of the continual growth of foreign exchange reserve and the gradualopenness of china, foreign exchange reserve has become an important factorthat firmly influences the macro economy. This essay will analyze the scaleof foreign exchange reserve. And especially focus on the effects on macroeconomy. This essay describes the changing situation of foreign exchangereserve of the past eight years and points out the reason. It also analyzesthe relationship between foreign exchange reserve and GDP,money supply,exchange rate and interest rate. According to these, the effects on macroeconomy are well explained. The increasing foreign exchange reserve putslimits on the monetary policy. Except this shortcoming, the unreasonableforeign exchange reserve leads to interest loss. After dealing with the data,it shows 1,044,000,000$'s loss. Although there are some shortcomings of theforeign exchange reserve, it brings benefits to stable development of theeconomy. It supports the faith to RMB, protects the economy from risks andsustains government's ability of controlling the market. At last, the essaypresents relative suggestions to alter the overgrowing trend of the foreignexchange reserve and sustain the continual development of china's economy.