Review of discussions about China’s foreign exchange reserves

GUAN Tao1

(1.Wuhan University)

【Abstract】After witnessing the drastic fluctuations of foreign exchange reserves in recent years, we have reviewed the previous discussions about China’s foreign exchange reserves. Our main conclusions are as follows: China’s abundant foreign exchange reserves indeed help fend off cross-border capital flow shocks and bought time for exchange rate reforms and adjustments. The aim of defending the reserves is not to keep a certain scale, but to protect market confidence. Defending the reserves is not an alternative for defending the renminbi exchange rate; they are actually two sides of one coin. It is not whether the central bank keeps foreign reserves, but how the exchange rate policy is carried out, that constrains the monetary policy. It is short-sighted and dangerous to devalue the renminbi with a view to reducing exchange losses of foreign reserves held by the central bank.

【Keywords】 foreign exchange reserves; moderate scale; financial security; cross-border capital flow shocks;

【DOI】

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(Translated by SUN Xun)

    Footnote

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This Article

ISSN:1007-0974

CN: 11-3799/F

Vol , No. 01, Pages 9-23+4

January 2018

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Article Outline

Knowledge

Abstract

  • 1 Function: foreign exchange reserves are kept for use, not for storage
  • 2 Nature: maintaining foreign exchange is all about confidence, not scale
  • 3 Costs: it is not the foreign exchange reserves but the policy of exchange rate that restrains the central bank
  • 4 Conclusion
  • Footnote