Report on China's foreign exchange reserves

Since 2001, China's foreign exchange reserves have entered a stage of substantial growth. By the end of March 2006, China's foreign exchange reserves have reached 875.07 billion U.S. dollars, top 1 in the world, accounting for more than 18% of the world's total reserves at the same period. The huge foreign exchange reserves have become one of the major factors affecting China's economic development. The increasing foreign exchange reserves have contributed a lot in enhancing China's comprehensive national strength and promoting rapid economic growth. However, the article consider that the sustained rapidly growing surplus, an imbalance in the balance of payments, has brought new problems and challenges, which mainly include losing the independence of monetary policy, bringing the macroeconomic impact because the excess liquidity, aggravating the imbalance in economic structure, missing the financial and opportunity cost, causing the RMB appreciation. To find a solution to decrease the pressure of rapidly increasing foreign exchange reserves, the article suggest that not only impel the reforms of foreign exchange administration system further but also improve the foreign trade conditions reasonably. At the same time, reserve assets management deserves attention as the supplement.