China's Foreign Exchange Reserves Appropriate Scale Range And Currency Structure Research

On the condition of openning economy, the optimal foreign exchange reserve is an important target for a country. Through the inspection of the foreign exchange reserve, we can understand clearly a country's macroeconomy. Through the adjustment of the scale of foreign exchange reserve, we can help to realize a country's economy target and balance the economic relation with foreign countries. With the economical globalization of the world, the main function of China's foreign exchange reserve is gradually changing from the payment of important demand and the short-term foreign loan to the absorption of results of currency crisis and the enhancement of domestic confidence for currency level, dealing with the possible financial risk even financial disaster. The moderate scale of foreign exchange reserve plays a vital role in guaranteeing paying back foreign loans, maintaining the stabilization of Renminbi's exchange rate, resisting the attacks of finance crisis as well as maintaining China's international prestige. Therefore, the scientific management of foreign exchange reserve has the extremely significance for a country.The two core problems of the management of foreign exchange reserve are the management of moderate scale and the moderate currency structure. Studying the moderate scale of China foreign exchange reserve will be help control the scale of foreign exchange reserve and reasonably making use of the foreign exchange reserves. At present, there are many related papers which researched the reserve with different angles and methods, like the ratio method,the reserve demand function method, and the cost-income method. It's thought that the moderate scale of the foreign exchange reserve is not a concrete value but a sector. The article constructs the lowest scale model of the foreign exchange reserve on the basis of reserve demand theory, and constructs the highest scale model of the foreign exchange reserve, then forms the moderate scale sector model of the foreign exchange reserve.By analyzing the model, we can discover that the scale of China's foreign exchange reserve appeared seriously excessive, especially the reserve that China has to pay back the debt has a great portion, which was caused by the increasing short-term foreign debt. Because of the influence of short-term foreign debt to reserve supplement which decreased the stable of China's foreign reserve, the country will not be safe, like withdrawing of the floating capital and the economic recession even financial crisis. The long-term capital inflow supply is more reliable. A country when foreign countries offer more loans, must realize the appropriate deadline structure in order to avoid the increasing instability of economy development and inducing the debt crisis.The choice of the currency structure of foreign exchange reserve is another core problem of the management of foreign exchange reserve. Its main content includes the choice of reserve currency, and the weight of each kind of reserve currency in the entire reserve property. There are three important theoretical models about the currency structure of reserves , namely property theory model, Heyler-Knight model and Dooley model. This article thinks that only considering all the three models can we make the moderate currency structure of a country's foreign exchange reserve, therefore, the paper considered all the three models for China's currency structure of foreign exchange reserve.By analyzing the model, the weight of US dollar and Japanese yen should be decreased as far as the risk and yield for concerned. But we also need considering other factors like foreign debt, FDI and foreign trade for the moderate foreign structure of moderate currency structure. Therefore, presently China's moderate foreign structure should be mainly made of US dollar although which is not the optimal. We should change and improve the policy of foreign trade, foreign debt etc.for the optimal currency structure.The findings of this article indicate that the moderate scale of China foreign exchange reserves is related with the opening degree of country, trading scale, FDI scale and its structure, domestic and foreign investments advantage difference, economical movement situation. As we can see, the scale of foreign reserve is highly related with trading structure, debt structure and foreign exchange arrangement. At present, China's foreign exchange structure mainly forms of US dollars and less EURO,which made the yield of reserves less. Therefore, the management and control need be strengthened.Overall, the two core questions are mutually related and should be considered synthesisly. In view of the fact that the excessive relatively foreign exchange reserve scale and the non-optimal currency structure, the country may carry on the foreign exchange reserve management actively. In other word, on considering of the factors like trading structures and foreign structures, we can make the currency structure of moderate reserves according to moderate currency structure, and make the currency structure of resting reserve according the optimal yield method, namely, considering the factors of risk and yield.Specifically, the paper is composed by six chapters. The first chapter is the introduction, including the literature summary, the main researching problems, the researching methods and the innovation spots. The second chapter and the third chapter belong to theoretical analysis, separately elaborating the moderate scale theory of foreign exchange reserve and the currency structure choice. The fourth chapter and the fifth chapter are the analysis with related models. The sixth chapter is about the management of foreign exchange reserve with several feasible proposals.