China's Foreign Exchange Reserves Of Appropriate Scale And Structure

China is integrating as an important player in the international economy with its progress of reforms and open market economic policies, and with the rapid development of the world trade and economic integration. At present, the flow of international capital is accelerating. Although this facilitates the development of the world economy, but it also makes the economy to be more volatile and the financial crisis to occur more frequently. Foreign exchange reserve is an important index for measuring the size of a nation's foreign trade. The purpose of foreign exchange reserve is not only to ensure the payment for the import, but also prevent the negative effect of the capital flow, stabilize the domestic foreign exchange rate and improve the confidence of local and foreign investors. Therefore, foreign exchange reserve plays an important role in avoiding speculative capital attacks and stabilizing domestic economy. The discussions on the sufficiency of foreign exchange reserve and effective management of foreign exchange reserve have become the major research topics in international finance field.The international financial crisis over the last several years proves that having sufficient amount of foreign exchange reserve and its effective management are very important for avoiding external crisis, especially the crisis from fierce fluctuation era capital account. Since the Asian financial crisis in 1997, the discussions on how to effectively manage the foreign exchange reserve, foreign exchange reserve to avoid financial crisis and intercept foreign exchange rate fluctuation have attracted more attentions in the economics. The financial crisis of Argentina at the end of 2001 made these discussions more widely and popular.Chma succeeded in the reform of foreign exchange management system in 1994, arid then began to carry out the single, managerial, floating foreign exchange rate. It realized the convertibility of current account in 1996, while the amdimt of foreign exchange reserve continuously keeps increasing. It amounted to USD$286.4 billions in 2002, which effectively helped China avoid Asian financial crisis and stabilize the foreign exchange rate. But beyond the continuous increase in the amount of foreign exchange reserve, the management policies on the foreign exchange reserve not only affect the efficiency of using the foreign exchange reserve, but also affect the whole efficiency of foreign exchange management system. The management on the foreign exchange reserve draws a lot of attention of government and scholars and substantial amount of research has been done on this.The management of the foreign exchange! reserve includes two parts: thesize and the structure of the foreign exchange reserve. While most literatures on the foreign exchange reserve research is just focuses on the static amount, in fact, the management of the foreign exchange reserve is a dynamic concept, it varies with the international and domestic economic environment changes. The types of demand for the foreign exchange reserve and the influence of the foreign exchange reserve on economy are varied because every country has different economic environment and different purpose of having the foreign exchange reserve. Therefore it is vital for every country or economies to make the management policies on the foreign exchange reserve in order to keep an appropriate amount of the foreign exchange reserve according to their own situation.This purpose of this paper is to research the foreign exchange reserve management. The models to measure the amount and structure of China's foreign exchange reserve are constructed on the basis of the systematic research theories, considering the reality of China. It also makes some suggestions on China's foreign exchange reserve for the policy makers.Being the important role in the economy of the foreign exchange reserves, this paper is mainly research the below five questions theoretically and practically.Firstly, it clarifies the definition of the appropriate amount of foreign ex...