The Lesson From Japanese Diversification Of Foreign Exchange Holders

China has been the state which possesses the largest volume of foreign exchange reserves since China outnumbered Japan in February,2006. At the same time, the foreign exchange reserve of China keeps accumulating with hundreds of billions of dollars per year. The continuous surpluses of current as well as capital accounts are the main source of foreign exchange earnings. Besides, the trend of RMB appreciation and the prosperous economy of China absorb a great deal of hot money, which is an additional source of Chinese exchange revenue. Furthermore, Chinese banking exchange system which was established in the reform of foreign exchange management system in1994is the primary channel of transforming foreign exchange assets into foreign exchange reserves.A majority of foreign exchange reserves are a double-edged sword to China. On the one hand, they have positive effect on China. Firstly, they are conducive to enhancing Chinese comprehensive national strength and further improving the country’s ability to obtain external financing. Secondly, they are capable of upholding Chinese financial security by strengthening Chinese ability to cope with international financial risks or emergencies and intervene with the foreign exchange market. Thirdly, enough foreign exchange reserves pave the way for the convertibility of RMB on current account. On the other hand, the excessive foreign exchange reserves impose some negative influences on China. Firstly, the appreciation pressure on RMB resulted from that supply of foreign currency exceeds its demand in the foreign exchange market is increasing and inhibits the growth of Chinese international trade. Secondly, the growing foreign exchange reserves deprive China of the independence of monetary policy in a large extent. Thirdly, the considerable foreign exchange reserves increase Chinese opportunity cost and exchange rate risk.In recent years, there are a number of researches on Chinese foreign exchange reserves at home and abroad. These scholars put forward their opinions on the causes along with effects of the increasing foreign exchange reserves and offer some suggestions on how to deal with them. However, these literatures mainly provide recommendations from the perspective of transforming the mode of managing foreign exchange assets, such as adjusting the currency structure of foreign exchange reserve, transforming part of the foreign exchange reserves into gold and oil and so on, setting up investment corporation and the like. Among these scholars, there are some bringing forward their own views based on "encouraging the people to hold more foreign exchange" proposed by Wu Xiaoling, the vice president of Chinese central bank. But there is scarcely any literature delving into how to transform the concentration of foreign exchange in the hands of government into the people on the basis of learning from Japan which has ever been similar to China.In terms of analysing the experience of Japan carrying out the policy of encouraging the people to reserve more foreign exchange and Chinese current situation, this thesis offers three pieces of advice on RMB foreign exchange rate formation mechanism, Chinese financial market and foreign exchange laws to lead the further reform. In view of that we have difficulty changing the causes of foreign exchange earnings keeping increasing in a short time, it is more important and urgent of researching how to promote more concentration of foreign exchange in the people and thus improve the yield of foreign exchange assets on the basis of maintaining the stability of foreign exchange market. Encouraging the people to hold more foreign exchange is able to contribute to relieving the pressure of excessive foreign exchange reserves, stimulating the consumption abroad, strengthening the autonomy of monetary policy and so forth.Finally, a conclusion is reached that encouraging the people to hold more foreign exchange can not come true only with the consent of government. For the time being, lots of obstacles like the appreciating yuan, the relatively inadequate channels of foreign exchange investment and the lack of the people’s experience of foreign exchange investment and others will inevitably discourage the people from holding and using foreign exchange. From this perspective, the three suggestions offered in this paper are capable of reducing the people’s resistance to the new policy, minimizing their fears and fully mobilizing them to plough into holding as well as using foreign exchange, which will truly help the people benefit from foreign exchange.