The Risk of China 's Foreign Exchange Reserve-英文作业代写－r51due

英国essay论文精选范文：“The Risk of China 's Foreign Exchange Reserve”，这篇论文讨论了中国外汇储备的风险。外汇储备是衡量一个国家综合实力的重要指标之一。充裕的外汇储备在调节国际收支、维持货值稳定、抵御国际金融风险方面起着重要作用。但是，巨额的外汇储备也带来了巨大的风险。其中，最大的风险就是通货膨胀和人民币升值所造成的巨额外汇储备。

Foreign exchange reserve is one of the important indicators to measure a country's comprehensive strength. Ample foreign exchange reserves play an important role in the regulation of the international balance of payments, maintaining the value of stability and withstanding the international financial risks. With the rapid development of China’s economy and the expansion of foreign trade and economic exchanges, our country’s foreign exchange reserves have been expanding, ranking the first in the world. But huge foreign exchange reserves have also brought great risks. in the face of complicated international economic situation. The thesis has a relatively detailed analysis on the sources and risks of China's huge foreign exchange reserves and put forward the corresponding preventive measures.

So far, China has the world’s largest foreign exchange reserves. The Chinese government and relevant department invest foreign exchange reserves into securities abroad, aiming at revitalizing the national foreign currency reserve assets, hedging against inflation and increasing their value. But the international investment market especially the American security market experienced unusual fluctuation and increasing risk, exerting severe impact and challenges on Chinese foreign exchange reserves’ foreign investment. The ever-increasing scale of foreign exchange reserves indicates the fact that our economic strength is reinforced and owns many positive effects. Simultaneously, we should foresee a series of risk accompanying high foreign exchange reserves. Negative impact would be serious if we do not take measures to cope with it.

The foreign exchange reserves are globally and generally accepted foreign currency held by the monetary authorities of a country and used to make up for the deficit of international payments in order to maintain the stability of its national currency exchange rate.

In retrospect of the development of China’s foreign exchange reserves, they exceeded 100 billion US dollar for the first time at the end of 1996.In the subsequent 4 years, the rise of the reserves was relatively stable. China’s foreign exchange reserves demonstrated a trend of rapid growth since 2000 and increased to 818 billion 872 million at the end of 2005, which was the world’s second largest. On February, 2006Chinabecame the holder of the world’s largest foreign exchange reserves of 853.7 billion, exceeding that of Japan. At the end of September, 2009,China's foreign exchange reserves reached 2272 billion 595 million[2].By March, 2010China’s foreign exchange reserves reached 2447 billion 84 million, ranking first in the world. In the first quarter of 2011China’s foreign exchange reserves increased by 24.4 percent than last year, which deserved concern.

In each international payments account, the current account and capital and financial account embody one country’s international payments. International payment surplus reflects that income from foreign countries is more than foreign spending or capital inflows are greater than capital outflow. Net income or inflows of one country become foreign currency assets through various channels in various forms. If the foreign currency assets are held by the monetary authorities, the foreign currency assets form one country’s foreign exchange reserves. So one country's main source of foreign exchange reserves is the international payment surplus―the International balance of payments current account surplus and capital and financial account surplus. Therefore, the following analysis is on the current account surplus and capital and financial account surplus.

Generally speaking, China’s current account has maintained a surplus. It shows that a series of preferential measures taken by China to encourage export worked, and China gained a lot of foreign exchange reserves. The empirical analysis of China′s trade balance from 1979 to 2008 shows that the Chinese trade surplus is caused by the over-issued U.S. dollars; RMB appreciation has a small contribution to China′s surplus in the short term. In recent years China's external terms of trade have moved around a lot in recent years, because of swings in raw commodity prices. But on average, the terms of trade dropped only 4 percent between 2007 and 2010, which had a modest impact on the current account. The current account surplus for 2011 as a whole is likely to fall to 3.5 to 4 percent of GDP.

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China's capital and finance account has maintained trade surplus since 1994, and the projects accounted for a large proportion of international payments. It is an important source of China's foreign exchange reserves. The capital and financial account surplus in 2008 was $ 46.3 billion. Capital and financial account surplus of 2009 was $ 180.8 billion the surplus amount, which was significantly increased than that of 2008. This was mainly due to the impact of the international financial crisis beginning with the U.S. subprime mortgage crisis in 2008, making foreign direct investment in China reduced. The difference between the capital and financial account and the direct investment account was $ 101.1 billion in 2010. This was mainly because the other investment account surplus was $ 72.4 billion, so the surplus amount was further expanded. It also reflected that a growing number of foreign investors were optimistic about RMB appreciation potential, and a large number of foreign exchange flowed into China in the form of short-term loans. FDI has significant positive effects on foreign trade, and the same to foreign trade surplus on foreign reserves. It is asserted that long-run equilibrium co-integration relation should exist among FDI, foreign trade and foreign reserves.

According to the data from IMF, by the end of 2010, 61% of China’s foreign exchange reserves are invested in U.S. dollar assets, 26% in Japanese yen assets and 13% in assets of other currencies. Though China SAFE don’t disclose the composition of currency reserves, it can be estimated that the

composition of China's foreign exchange reserves approximate that disclosed by the IMF―two thirds of China’s foreign exchange reserves are invested in the U.S. dollar reserves.

The lately disclosed data by the treasury department of America showed that Chinese investment in U.S. Treasury bonds was 1.15 trillion by the end of February, 2011. According to our estimates, taking the U.S. Treasury bonds purchased by China's central bank through offshore centers such as London, Hong Kong into account, the scale of China's reserves invested in U.S. Treasury bonds is about $ 1.3 trillion to $ 1.5 trillion currently, accounting for up to 43% to 49% of China's foreign exchange reserves. According to the latest data released by the People's Bank of China, China's foreign exchange reserves were up to $ 3.04 trillion by the end of March 2011.

The more the foreign currency reserve assets are, the greater the exposed risk positions are. Specifically, it leads to the following risks.

With the continued growth of foreign exchange reserves and gradual increase of foreign exchange, the base currency devoted by the central bank increases continuously, exacerbating the crisis of domestic inflation. In order to hedge against foreign exchange, the central bank takes the measure of issuing bills and treasury bonds, raising the deposit reserve ratio and other measures. However, the amount of foreign exchange inflow is too large that the central bank’s power hedging against foreign exchange is relatively limited. Moreover, the U.S. dollar continues to depreciate due to the financial crisis, so the central bank purchases a large amount of dollars on the foreign exchange market in order to maintain the stability of RMB exchange rate. The amount of RMB invested in the foreign exchange market increases, which aggravates China's inflation risk. Although the central bank enhanced tightening dynamics, the uncertainty of international economic environment increased.

The huge foreign exchange reserves also have a significant impact on the trend of the RMB exchange rate. On one hand, the constant expansion of foreign exchange reserves makes the expectation of RMB appreciation higher and a lot of hot money flows into China. China with its economy developing continuous at a high speed has become the focus of hot money inflows especially in the context of the financial crisis. On the other hand, the international community represented by the United States always attributes the continuous expansion of China’s foreign exchange reserves to the undervaluation of the RMB, so it has been asking the RMB to appreciate. In a word, with the continuous expansion of China’s foreign exchange reserves, the risk of the appreciation of the RMB will continue to increase faced with the combination of the economic situation and political pressure.

In terms of the structure of foreign exchange reserves, China's foreign exchange reserves place excessive reliance on U.S. dollar assets. In recent years, China's assets invested in the U.S. securities accounted for about 60% -70% of the total foreign exchange reserves of the period. Assets in the purchase of securities accounted for 95% of the total investment and most of the securities were of long term. Although China began to cut the holding of U.S. Treasuries since December 2009,Chinais still holding $ 889 billion U.S. Treasuries. From the above analysis, a large number of our dollar-denominated assets exist in the form of U.S. Treasuries, which makes the asset structure relatively homogeneous and result in more concentrated risks.

In recent years, China's actual foreign exchange reserves are higher than the appropriate scale of foreign exchange reserves. On one hand, a large amount of foreign reserves demonstrates the improvement of China’s economic status and that China’s power to withstand the international financial risk is strengthened. On the other hand, foreign exchange reserves are not the more the better. Excessive foreign exchange reserves are likely to result in the idling and waste of foreign exchange resources, add pressures to inflation and the appreciation of RMB and thus pose a great negative impact on the development of the economic.

With the rapid growth of foreign exchange reserves, the central bank increases the investment in the base currency significantly through the channel of the funds outstanding for foreign exchange. In the current situation, the central bank must deal with several aims of the expanding foreign exchange reserves, a relatively stable exchange rates and excess liquidity simultaneously. However, the aims constrain each other and they are not compatible. So a single monetary policy has difficulties in achieving both domestic and international policy objectives simultaneously. In order to ensure the exchange rate stability and free capital flows, China had to sacrifice the independence of monetary policy

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