How To Reduce Foreign Exchange Reserves?

Recently, Premier Li Keqiang's Frank statement on "more foreign exchange reserves is already our great burden" during his visit to Africa has aroused widespread concern.

Those who worry about foreign exchange reserves are regarded as "monster of flood" and "monster of quantity". Optimists see this as a positive signal of "actively relocating foreign currencies to the people", and impulsiers once again put forward "dividing foreign exchange reserves". Rational wise people remind us that they need to make long-term plans and not rush to cut. The author believes that China's foreign exchange reserves have indeed exceeded the optimal scale, but it is useless to demonize their negative effects. The urgent task is to comply with diversified and decentralized market investment rules, scientifically and reasonably "reduce the burden" on foreign exchange reserves, and try every means to stabilize reserves growth, revitalize stock reserves, and change "burden" into "wealth".

　　 How much is the burden of 4 trillion dollars?

In a modern economic society, a country foreign exchange reserve The role played is not limited to meeting international payments and maintaining exchange rate stability. reserve "Function", but expanded to cooperate with macroeconomic regulation and control, resist external risks, enhance international discourse power and other economic, financial, political and diplomatic fields. The foreign exchange reserves of US $4 trillion are obviously able to fully meet various functional needs, highlight national strength and enhance confidence. It is an important support for our country to focus on domestic economic development, down-to-earth, internationalization of RMB and opening of capital account, even under complicated external shocks.

Of course, "everything must have a degree, more than a certain degree, the benefits are less and less, the cost is higher and higher", the Secretary of State Administration of foreign exchange Yi Gang more than once expressed. "No matter what the circumstances are, China's foreign exchange reserves are enough".

　　 So what is the magnitude of US $4 trillion?

According to the author's estimate, China's foreign exchange reserves have far exceeded the 3-6 months' import volume and the single index of total foreign debts due in the coming year. Compared with the 1997 Asian financial crisis and the 2008 sub prime mortgage crisis, the size of China's foreign exchange capital outflow was nearly 2 times higher than that of the emerging market countries. According to the comprehensive index set by the International Monetary Fund (IMF), it also slightly raised the upper limit of the appropriate scale. The negative impact of the continued growth of foreign exchange reserves is rising. It not only expands the base money, but also increases the difficulty of monetary policy adjustment, forms the hidden danger of asset bubble pressure and financial stability. It also contains a large number of hidden costs, such as the slow adjustment of industrial structure, the pressure of resources and environment, and the increase of international frictions.

As far as foreign exchange reserves management department is concerned, the pressure and challenge of foreign exchange "home", which manages 1/3 of global foreign exchange reserves, is self-evident. How to prevent risks, preserve and increase their value is an unprecedented challenge for them. According to the investment rules of the market, we should use the market operation mode and manage well the foreign exchange reserves through marketization so as to maximize the utility of foreign exchange assets to the development of the country and the well-being of the people.

　　 Marketization Try to stabilize increments and revitalize the stock.

"Not putting eggs in one basket" is the golden rule of investing in the market. Other foreign exchange reserves management institutions in the world have more successful experiences in this respect, such as the Central Bank of Norway and Singapore Government Investment Company (GIC), all of which are committed to diversify their investment assets.

In contrast, China's foreign exchange reserves investment should be affirmed that the diversification attempt has begun. The official website information of the foreign exchange bureau shows that "long-term and strategic perspective" and "diversification of currency and asset allocation" are important guidelines for the operation and management of foreign exchange reserves. The "investment benchmark management mode" commonly adopted by asset management institutions was introduced in 2001, and the research driven business philosophy and counter cyclical risk management strategy were gradually implemented. The managers of external managers were entrusted with the operation and entrusted loans.

According to the data released by the foreign exchange bureau, foreign exchange reserves cover more than 70 countries and regions, more than 30 currencies, and more than 50 types of assets. This is quite different from the view that our foreign exchange reserves are concentrated in holding US Treasury bonds. The author consulted the US Treasury's calendar data. From the beginning of 2011 to the present, China's holdings of US Treasury bonds are basically up to US $1 trillion and 200 billion, and the growth scale is less than US $120 billion. Compared with the increment of US $1 trillion and 100 billion in foreign exchange reserves over the same period, we can calculate that nearly 1 trillion US dollars of new foreign exchange reserves have been diversified into other assets.

In addition to doing well in investment and ensuring the safety and benefits of assets, making good use of foreign exchange reserves is another key to give full play to the positive effects of foreign exchange assets. In this field, the importance of market-oriented operation is more prominent. The marketization mechanism can effectively avoid the use of the main body of the exchange to avoid exchange rate fluctuations, blindly expand the moral hazard of financial leverage and investment, and prevent the planned economic thinking from resurgence to distort the decisive role of market allocation resources, and eliminate inefficient, ineffective use or even loss and waste.

Tracking media reports is not difficult to find that in the past ten years or even longer, foreign exchange reserves management departments have tried positively. If we set up Huijin Company to promote the shareholding system reform of commercial banks, set up and inject CIC and new capital injection countries, expand the channels of use, set up the foreign exchange reserve entrusted loan office, and innovate the entrusted loan business mode to support the real economy and the "going out" strategy. In recent years, because of the strong expectation of unilateral appreciation of RMB, enterprises and financial institutions are more willing to hold foreign exchange liabilities, which has resulted in a tight relationship between supply and demand of foreign exchange loans. At the end of 2013, the balance of foreign exchange loans of domestic financial institutions increased by 323 billion 400 million US dollars compared with the end of 2010 before the establishment of the foreign exchange bureau's entrusted loan office, which increased by 113 billion 500 million US dollars over the same period.

It is worth noticing that in recent days, Zhou Xiaochuan, governor of the people's Bank of China, publicly stated that in recent years, the joint investment fund of 2 billion US dollars, 3 billion dollars and 2 billion US dollars jointly established by the Chinese government and the Pan American Development Bank, the world bank and the African Development Bank, and most of the funds of the 5 billion China Africa Development Fund, all come from foreign exchange reserves.

The author thinks that only by increasing the quantity and stock together can we change the "burden" of foreign exchange reserve into "wealth". In terms of increments, we should closely focus on the requirements of accelerating the transformation of the mode of economic development put forward in the third Plenary Session of the 18th CPC Central Committee, adhere to the principle of expanding domestic demand, adjusting structure, reducing favorable balance and promoting balance, expanding imports and stabilizing exports, accelerating the realization of convertibility of RMB capital items, and rationalizing the market balance mechanism of current account and capital account. At the same time, we should steadily improve the formation mechanism of the RMB exchange rate marketization, and truly realize the central bank's "basically maintaining stability of the RMB exchange rate at a reasonable and balanced level", and "the central bank basically withdraws from the normal form of foreign exchange market intervention" to effectively exert the price adjustment function of the exchange rate on the balance of payments.

In terms of stock, it is the key to manage well. The foreign exchange reserve management department should take a more positive attitude and a more open mind and adhere to the market-oriented mechanism of the right and responsibility to carry out investment, application and reform and innovation so that foreign exchange reserves will not only preserve and increase value on tangible values, but also contribute more to the intangible benefits of safeguarding national interests and promoting sustainable development, so as to truly make foreign exchange reserves a "wealth" for the benefit of the country and the people.