What are the drawbacks of excessive foreign exchange reserve

What are the drawbacks of excessive foreign exchange reserves? Excessive foreign exchange reserves have three main problems: First, the central bank needs to deposit the currency base currency, which exacerbates the already serious problem of excessive currency and increases inflationary pressure. Second, foreign exchange reserves mainly invest in High liquid assets such as treasury bonds have low returns and low foreign exchange resources, which is not conducive to low-cost external financing. Third, security concerns. Zhou Xiaochuan, the governor of the central bank, said in 2011 that foreign exchange reserves have exceeded the reasonable level needed. (1) 1. The scale of foreign exchange reserves is too large. The central bank needs to deposit the base currency of the currency, which will increase the pressure of inflation. Too much foreign exchange reserves will cause the money supply to grow too fast, which will undermine the original balance of money supply and cause inflation. High foreign exchange reserves are shown in the foreign exchange field, that is, foreign exchange supply is greater than demand, forcing the local currency to appreciate. The appreciation of the local currency tends to reduce the competitiveness of domestic exports, which is not conducive to employment and economic growth. At the same time, the appreciation of the local currency leads to the high value of foreign exchange assets, which is easy to form an asset bubble. Further increasing the pressure on the appreciation of the currency, the major trading partners such as the United States, Japan and Europe, with the rapid growth of foreign exchange reserves as the main evidence, exerted pressure on the appreciation of the currency; international speculators use this as the basis for the unreasonable exchange rate of the currency, hot money (hot money) It is commonly known as hot money. It is a liquidity that is flooded in the world and has no specific use. It is a speculative fund that is rapidly influencing the international financial market in pursuit of the highest reward and the lowest risk. Its biggest feature is short-term. Arbitrage and speculation, huge amounts of hot money into the people, resulting in excessive money supply, on the one hand, the source of funds for overheated fixed assets investment is rich, on the other hand, it will lead to inflation, which will have an impact on economic development.) Through various The channel is crowded, which in turn increases the pressure on the appreciation of the currency. Under the existing currency exchange rate system, if the central currency exchange rate system Without effective asset to hedge foreign exchange too much, with the growth of foreign exchange reserves, foreign exchange base money by serving also forced to increase. Foreign exchange accounts for too much, and the amount of base money is too large to induce inflation. Although the central bank has been arbitrarily issuing additional bills to hedge foreign exchange holdings, the strength of the base currency is still far from being able to “overwrite” the rapid growth of foreign exchange holdings, and the strength of hedging is limited. Roughly calculated, the central bank's hedging rate for foreign exchange holdings is about 70%, and the remaining 30% of foreign exchange holdings will directly increase the broad money supply, causing excess liquidity and causing inflation. Practice has proved that high monetary growth rate is the driving force of inflation, and the rate of growth of countries with high inflation rate is also high, whether it is pulling home or other countries in the world. Inflation has serious harm to the economy, causing changes in the pattern of national income distribution, resulting in a decline in the investment rate, affecting the rational allocation of industrial structure and product structure, and disrupting normal commodity circulation. Therefore, governments have put inflation to a very important position. 2. The appreciation pressure of the currency has increased. The scale of foreign exchange reserves is very large, which makes the foreign exchange supply on the foreign exchange field very abundant, which causes the currency to face further appreciation pressure. The appreciation of the currency will weaken the competitiveness of export products in the international arena, leading to a decline in exports and combating economic development. In order to alleviate this pressure and stabilize the value of the currency, the central bank was forced to purchase excess foreign exchange on the foreign exchange market, which further aggravated the expansion of foreign exchange reserves. The continuous expansion of the scale of foreign exchange reserves will inevitably lead to greater pressure on the appreciation of the currency, thus forming a vicious circle. 123 next page last page