Foreign exchange reserves: a new challenge to China

Abstract

This paper discusses the challenge imposed by the Chinese government's unprecedented amount of foreign exchange reserves. Our cost and benefit analysis reveals that political considerations are more important than economic factors. Given its choice of gradual appreciation, the Chinese government will face social unrest in the long term that differs from what it faces in the short term.

Keywords:

• foreign exchange reserve
• monetary policy
• foreign exchange rate policy
• population distribution
• social unrest