According to statistics, by the end of March this
year, the balance of China's foreign exchange reserves had
totaled US$316 billion, ranking second in the world.
The growth of China' s foreign exchange
reserves is mainly due to the continuous development of the
country's economy. Rapid economic development has created
more investment opportunities. Under the backdrop of global
economic slowdown, China has become a great attraction to
international investment and has achieved better results
than expected in regard to foreign trade and foreign capital
utilization.
Since 2001, economic powers
worldwide have entered a low-interest rate period. The US
Federal Reserve Board has cut the interest rate 12 times,
letting it plummet to the lowest level in 41 years. The
interest rate of the US dollar in China has come down
accordingly. At present, the gap between the interest rates
for the savings deposits of the Renminbi (RMB) and foreign
currencies has changed from negative into positive, and the
interest rate of RMB savings deposits is higher than that of
US dollar savings deposits. The RMB exchange rate is
expected to increase further and the market prospect for the
RMB remains sound. The good situation maintained by China in
its foreign exchange earnings has laid a solid foundation
for continuous growth in its foreign exchange
reserves.
Since its WTO accession,
China has honored its commitments by enlarging the fields of
foreign investment, which has resulted in the influx of
foreign capital. Just like its previous efforts, the
measures taken by China in recent years to promote
opening-up have further stimulated overseas
investment. Furthermore,
improved management and reduced administrative interference
have enhanced market players' confidence in China's economic
development and in the RMB, and helped increase the
country's foreign exchange earnings. In a word, the growth
in China's foreign exchange reserves is due to the
implementation of various macro-economic policies and the
surplus achieved in both current and capital accounts of the
balance of international payments. Hence, the foundation is
solid. The growth in
foreign exchange reserves has enhanced international and
domestic confidence in China's economic development.
However, some people worry that it may bring about negative
influences. Internationally, a simple and universally
applicable standard for the amount of foreign exchange
reserves is unavailable. In the past, when international
economic activities emphasized trade, it was believed that
the foreign exchange reserves of a country should be
sufficient to finance its imports for three or four months.
With increases in the flow of international capital,
particularly following the frequent occurrence of financial
crises since the 1980s, various countries, while balancing
the size of their foreign exchange reserves, have attached
growing importance to capital flow and factors that guard
against financial crisis. Meanwhile, they have taken into
account factors in other fields, such as the extent and
level of economic development, the scale of opening-up and
the amount of reliance on other countries, the volume of
foreign trade and fluctuation in the balance of
international payments. China, as a large
developing country, is in a stage of rapid economic
development and restructuring. The possession of a
considerable amount of foreign exchange reserves helps
safeguard the credibility of both the country and Chinese
enterprises, expand international trade, attract overseas
investment, lower the cost of financing Chinese institutions
in their effort to enter the international market, enhance
the country's overseas financing capacity, and further
advance the process of reform and opening-up.
Given the current international
monetary system, the possession of sufficient foreign
exchange reserves is also conducive to coping with
emergencies, curbing the fluctuations in the balance of
international payments, and guarding against and relieving
international financial risks. Particularly, as China has
tightened up its ties with the global economy since its WTO
accession, its economic development faces numerous uncertain
factors. A considerable amount of foreign exchange reserves
helps enhance the country's macro-control ability.
Furthermore, the efforts
made by the People's Bank of China in recent years to
initiate open market operation of foreign exchange, purchase
foreign exchange and issue the basic currency have not only
increased the country's foreign exchange reserves, but also
supported the implementation of the prudent monetary policy,
increased money supply and helped mitigate the pressure of
deflation. The growth in
China's foreign exchange reserves has also benefited the
Chinese people. Chinese citizens now find it easy to change
foreign currency in banks before going abroad for tours or
study. The maximum amount permitted to be changed by an
individual for one year's study abroad is US$20,000, while
that for an overseas tour is US$2,000. In the early 1990s,
however, an individual on a business tour abroad could only
change US$30, and individuals traveling abroad on their own
could not change any foreign currency.
Given the drastic fluctuation of the interest
rates of many foreign currencies, the stability of the RMB
has greatly enhanced the prestige and position of the
Chinese currency in Asia and the world at large. In recent
years, the RMB has become a "hard currency" most
willingly accepted by residents in Southeast Asian
countries. Even some shops and recreational establishments
in some European countries welcome use of the RMB in their
business transactions. Some airports and tourist attractions
in the United States also offer RMB exchange service. Of the
29 tourist destination countries opened by China, the
majority accept RMB from individual consumers. During this
year's Spring Festival, the number of Beijing residents
going on overseas tours increased by 14 percent as compared
with that in the same period last year. The amount of
foreign currency purchased by individuals, however, dropped
by 50 percent.
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