An Evaluation Of The Scale And Composition Of China Foreign Exchange Reserves

An optimal foreign exchange reserves is a combination of appropriate total reserves and suitable composition, both of which determine the efficiency of foreign exchange reserves. Though lack of adequate foreign exchange reserves may bring restrictions to the economy development of country, too much excess foreign exchange reserves can be a burden to the economy. The appropriate total reserves depends on the economy condition of a country. The composition of foreign exchange reserves comprises several factors, such as income approaches, currency distribution, investment species, term structures, ratios between foreign exchange reserves and gold reserve and proportions hold by government and the private. An optimal composition will be beneficial to realize the negotiability, . security and profitability of foreign exchange reserves.Based on the study of both foreign and domestic references, this thesis takes China foreign exchange reserves as the object of research, different methods such as the combinations of qualitative analysis with quantitative analysis and total analysis with structure analysis were used to evaluate the advisable of foreign exchange reserves. Both the appropriate total reserves and suitable composition were studied with emphases. During the study of total reserves, fuzzy comprehensive evaluation model were used. The results show that China foreign exchange reserves seem to be excessive. Over holding of foreign exchange reserves not only affect the performance of currency policy, raised the pressure of the RMB appreciation and the risk of reserves negatively, but also deteriorate the efficiency of capital and resource of our country.From the study of the composition of foreign exchange reserves of China, it was deduced that foreign exchange reserves accounts for too much of the international reserve, also the reserve hold by the private was too little, income approaches was uncertainty, currency composition and investment species were over simplex, short term investment were deficient. Foreign exchange reserves of China is far from optimal.From the domestic view, there are many reasons for the current situation of China foreign exchange reserves, such as the rapid growth of economy, surplus of the balance of payments, the system of exchange settlement and sales and the unbalance of trade and investment policies.On the other hand, the irrationality of international monetary system may be another reason. It is a long-term and dynamic process to optimize the foreign exchange reserves of China. There are many measures should be adopted, such as reforming international reserves system, strengthening local monetary cooperation, controlling reserves scale, optimizing reserves composition and adjusting policies of trade, investment, foreign exchange rate, monetary, finance, foreign exchange management, etc..