10-23-2006 11:06

Data from China's central bank shows that China's foreign exchange reserves will hit 1 trillion US dollars in the near future, with an increasing pace of 20 billion US dollars per month, and have reached over 980 billion US dollars by the end of September of the year. Then what does 1 trillion US dollars forex reserves mean to China, and how large a scale is appropriate for the country's forex reserves.

Foreign exchange reserves, generally speaking, is the foreign exchange accumulation of a country's economic activities surplus, or simply the foreign exchange held by the central bank.

Holding a large forex reserve is of strategic significance for a country. First, forex reserve is a basic way of a country to pay for international trade. Second, it is a solid material foundation for resisting international risk. Third, forex reserve serves as a major driving force of a country's economic growth. And finally, for China, forex reserve is also an essential condition for the RMB currency to realize its full convertibility.

Experts say a country needs enough reserves so that in the event of a crisis, it could finance 3 to 6 months of imports and repay all foreign debts falling due within a year. Now China's reserves are enough to fund 14 months of imports and it could pay off its short-term debts about 6 times over.

Many foreign countries consider the large scale of China's forex reserve as a indicator of the country's increasing economic power. Expert form China's central bank said 1-trillion-US-dollar reserve is good for China, as it can ensure the country's financial security and make it play a more important role in global economic field.


Editor:Lu Yuying