First, a foreign exchange reserves held in foreign currencies for the performance of financial claims, is not used in domestic production. This raises the issue of opportunity cost, that is, if the monetary authorities do not hold reserves. These reserve assets can be used to import goods and services, increased production of the actual resources thereby increasing employment and income, and abandoned the interests of holders of reserves. Therefore, holders of foreign exchange reserves, to consider the opportunity cost. Secondly, corresponding to the increase in foreign exchange reserves to expand the money supply, foreign exchange reserves are too large will increase the pressure on inflation, monetary policy more difficult. In addition, holders of excessive foreign exchange reserves, may have suffered losses due to foreign currency exchange rate depreciation. Therefore, the foreign exchange reserves should be maintained at an appropriate level.
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