The Research Of The Measurement And Control Of The Costs Of China’s Foreign Exchang Reserves

In the international financial yield, foreign exchange reserves, particularly that of China has been a hot topic. In recent years, China’s foreign exchange reserves increased year by year. The CAGR of China’s foreign exchange reserves, which is higher than Japan (10.28%), has reached 27.3% from 2000 to 2013. According to the People’s Bank of China, in December 2013, China’s foreign exchange reserves reached$ 3.82 trillion, which are three times higher than Japan’s foreign exchange reserves ($ 1.26 trillion). So huge foreign exchange reserves can meet the needs of foreign trade, enhance China’s comprehensive national strength and international status, but also can increase the costs of foreign exchange reserves.Based on the past literature, this paper makes a comprehensive analysis of the total cost of China’s foreign exchange reserves, including economic and social costs. The main economic cost includes the opportunity cost, sterilization cost and capital losses. The social costs are mainly gap costs and inflation costs. Through the measure, I found that China’s foreign exchange reserves are facing huge opportunity costs, sterilization cost and capital losses. Through the analysis of the gap costs, I found that using foreign exchange reserves to make up the gap of the social security fund would promote current consumption, expand domestic demand, and thereby promote economic growth. Inflation costs of foreign exchange reserves was mainly due to adaptive expectations and the inflation inertia, the effect persisted even if the central bank took sterilization measures.According the detailed analysis of the costs of China’s foreign exchange reserves, I proposed some effective measures to control costs:optimization of the currency and assest structure of foreign exchange reserves, reducing the proportion of U.S. dollar assets, reducing the proportion of treasuries and increasing the proportion of stocks appropriately; optimization of the sterilization measures, reducing the sterilization costs of the foreign exchange reserves; using the foreign exchange reserves to cover the social security fund gap; promoting the internationalization of RMB, reducing foreign exchange reserves, reducing the total costs of foreign exchange reserves.