-
- Index number:
- 000014453-2019-0197
-
- Dispatch date:
- 2011-07-25
-
- Publish organization:
- State Administration of Foreign Exchange
-
- Exchange Reference number：
-
- Name：
- FAQs on Foreign Exchange Reserves (II)
6. Some people hold the opinion that China's foreign exchange reserves are hard-won money-earned by thousands of domestic enterprises and Chinese individuals in exchange for actual goods, energy, and resources, and with implicit environmental costs. What is your comment about this?
Answer: China's foreign exchange reserves are formed when the Peoples Bank of China puts in our base currency and purchases foreign currencies on the foreign exchange market. The home-currency capital used in these purchases directly adds to the liabilities of the Central Bank, whereas Chinas foreign exchange reserves, equal in amount to the liabilities, show up on the asset side of the Central Banks balance sheet. When buying foreign exchange, the Peoples Bank of China pays a corresponding amount of RMB to the original holder of the foreign exchange. In other words, in the formation of the foreign exchange reserves, businesses and individuals are not contributing their foreign exchange to the State for free, but they are selling it to the State in return for an equivalent amount of RMB. These transactions are voluntary in nature and equivalent in value. The economic interests of businesses and individuals have already materialized when they trade their foreign exchange for Renminbi.
7. China has a huge stockpile of foreign exchange reserves that is regarded by the international community as a sovereign wealth fund, and relevant investment operations are often restricted by various factors, such as market capacity and politics. Is it possible for parts of the foreign exchange reserves to be entrusted to domestic professional financial institutions or international investment institutions and to be separately managed?
Answer: Foreign exchange reserves, like sovereign wealth funds, professional asset management companies, and other types of institutional investors, are restricted by the international situation, market conditions, and regulatory rules. But unlike other institutional investors, foreign exchange reserves are very different in terms of fund sources, operational objectives, risk controls, and so forth.
To ensure the safety of foreign exchange reserve assets, and to bring into full play the comparative advantages of massive operations in a mature investment market, China adheres to independent management of its foreign exchange reserves. Meanwhile, various effective methods have been explored to expand investment channels, including entrusted operations. Since 1996, the investment of a proportion of the foreign exchange reserves has been selectively entrusted to leading asset management institutions at home and abroad, all of which have a resounding reputation, a large amount of assets under their management, and an exceptionally successful performance record within the industry. Great importance has been attached to the risk management by these external managers, and their operations have been closely monitored as part of the overall risk management framework so as to ensure the safety of our foreign exchange assets.
8. Foreign exchange reserves should be from the people and for the people.If it is inappropriate to distribute foreign exchange reserves directly to the people, then is it possible to strip a part of the foreign exchange reserves and build a Sovereign Pension Fund in order to enhance Chinas social security system?
Answer: Both suggestionseither directly distributing the foreign exchange reserves among the public, or using the reserves directly for social welfare programs such as pension insurance, medical care, and educationinvolve the same question: can the foreign exchange reserves be distributed and used without compensation? Unlike fiscal surpluses, foreign exchange reserves are created when the Central Bank purchases foreign currencies on the foreign exchange market; they represent foreign-exchange assets that correspond to the home-currency liabilities on the Central Banks balance sheet. To spend the foreign exchange reserves without compensation is to print money at will, and unchecked expansion of the issuance of money by the Central Bank will lead to dire consequences, such as inflation. Under the guidance of the management principle of compliance with the laws and regulations, utilization with compensation, increased efficiency, and effective regulation,efforts have been, and will continue to be made, to explore innovative channels for the management of foreign exchange reserves, so as to contribute to Chinas economic construction and to improving the peoples livelihood.
9. Currently, the foreign exchange position of domestic commercial banks is generally tight, thereby placing certain restrictions on their ability to support foreign trade and on the going globalpolicy of enterprises. Can we lend some of Chinas foreign exchange reserves to domestic commercial banks?
Answer: China has sufficient foreign exchange reserves and convenient channels for foreign exchange purchases, which can fully satisfy the legitimate needs of commercial banks and enterprises to purchase foreign exchange. If banks and enterprises need foreign exchange for foreign trade and going global,they can purchase it with RMB funds at any time and without any policy barriers. The practice of simply lending foreign exchange reserves to domestic banks, however, will further reduce foreign exchange purchases and correspondingly exert more pressures on the foreign exchange purchases of the Peoples Bank of China (PBOC), which will not be advantageous to macro control. In recent years, taking into consideration the overall strategic situation of national development and based on the principle of compliance with the laws and regulations, utilization with compensation, increased efficiency, and effective regulation, the PBOC and SAFE have developed various channels to apply the foreign exchange reserves, effectively serving the needs to purchase foreign exchange by banks and enterprises and strongly supporting foreign trade and implementation of the going global strategy.
10. In recent years, on several occasions China has put maintained that it encourages foreign exchange to beheld by the people,but why is it difficult to realize this?
Answer: In recent years, Chinas balance of payments has maintained a twin surplus,and especially after the global financial crisis, international liquidity has proliferated and large-scale foreign exchange net inflows have resulted in the continuous accumulation of foreign exchange reserves. At present, China actively supports residents to hold and use foreign exchange, and the nation has realized full convertibility under the current account and is able to fully satisfy the foreign exchange purchase needs of residents for trade in goods and trade in services as well as other purposes under the current account. Under the capital account, except for partial control over some high-risk balance of payments transactions, there are no policy barriers to either foreign direct investments by enterprises or investment in overseas capital markets by enterprises and individuals through qualified domestic institutional investors (QDII).
