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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 theU.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. AlthoughChinabegan 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.

2.2 The negative impact of huge foreign exchange reserves

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 ofChina’s economic status and thatChina’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.

2.2.1 Increasing inflationary pressures and having an influence on independent policy-making of the monetary authorities

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,Chinahad to sacrifice the independence of monetary policy[6].

2.2.2 The shrinking value of foreign currency reserve assets increasing the risk of capital gains and exchange rate

For a long time,China's foreign exchange reserves were mainly consisted of U.S. dollar assets. The decline of U.S. dollar exchange rate will directly leads to shrinking the book value of the foreign exchange reserves especially in the context of devaluation in the dollar. From August 2007 when theU.S.subprime mortgage crisis broke out to the end of 2008, the exchange rate of U.S. dollar against the RMB dropped from 7.5600 to 6.8346, the U.S. dollar depreciating by up to 9.6 percent. To estimate In terms ofChina's $ 1.9 trillion foreign exchange reserves, losses caused by exchange rate risk are up to 1.37826 trillion Yuan. In order to get over the financial crisis, a great quantity of T-bonds is to be issued to carry out the 70-billion plan of saving the market, which will lead to a decline in the price of the already issued T-bonds on the market. Moreover, the consecutive Interest - reduction 本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。