A Research On The Causes And Effects Of The Decline Of Foreign Exchange Reserves In China

Since China opening to the outside world,the scale of foreign exchange reserves has been continuously growing.As early as 2006,Chinese foreign exchange reserves surpassed Japan as the country with the world's largest foreign exchange reserve,and reached the highest value of 399.2 billion U.S.dollars at the end of June 2014.For a long period of time,China has been trapped in the extraordinary growth of foreign exchange reserves,and domestic scholars have concentrated more on such situation.However,since July 2014,the balance of foreign exchange reserves in China has shown a continuous decline.At the end of January 2017,the balance of Chinese foreign exchange reserves fell to 2998.2 billion U.S.dollars,which has fallen by nearly 1 trillion U.S.dollars and fell by nearly 25%.This continuous decline is rare in the history of Chinese foreign exchange reserves.According to the newly released data of the People's Bank of China,I found that Chinese foreign exchange reserves declined again in 2018.With regard to the recent decline in Chinese foreign exchange reserves,there are still gaps and deficiencies in the existing studies.And the causes and possible series of macroeconomic effects may require urgent study.Firstly,this article summarizes the basic theory of foreign exchange reserve and the literature on the causes and effects of the change in foreign exchange reserves,based on the background of the sharp decline.Secondly,I explore the causes of the decline in foreign exchange reserves,combining the macroeconomic data and theoretical analysis.Finally,this paper analyzes the effect of Chinese declining foreign exchange reserves empirically.In the analysis of the declining effect of foreign exchange reserves,this paper establishes the VAR model and impulse response function to analyze the impact of the decline in foreign exchange reserves on monetary policy.At the same time,I established a multiple linear regression model to explore the impact of the decline in foreign exchange reserves on the process of RMB internationalization.This paper used measurement software to analyze and validate the research hypothesis.This article believes:(1)The causes of the decline in Chinese foreign exchange reserves are relatively complex,mainly affected by economic policies and opening up to the outside world.Exchange rate and interest rate also play a big role.(2)Under the ‘new normal',foreign exchange reserves have been unable to influence the price level.The path may be insignificant due to the currency reversal mechanism.With the cessation of currency write-off caused by the decline in foreign exchange reserves,the independence and effectiveness of the government's monetary policy have been strengthened.(3)Excessive foreign exchange reserves,due to foreign currency containment,will hinder the internationalization of RMB to some extent.Modest use of foreign exchange reserves is beneficial to the advancement of the internationalization of RMB.(4)Foreign exchange reserves should be Chinese strategic reserves.We should use our foreign exchange reserves more flexibly.We should use Chinese large-scale foreign exchange reserves in accordance with the macro-economy timely adjustment and control policies to promote the process of RMB internationalization and reduce dependence on foreign currencies.