A Research On Foreign Exchange Reserve Scale Administration

Foreign exchange reserve is the core of the international monetary system and of vital importance in the area of international financial research. It concerns the governments?ability of adjusting balance of payment and stabilizing exchange rate, and all financial authorities keep close watch on its development. Since China抯 foreign exchange administration reform in 1994, its foreign exchange reserve has reached more than 160 billion US dollars. Only second to Japan, China now is the second largest foreign exchange reserve holder in the world. In the research of scale administration of foreign exchange reserve, this thesis analyses western optimal reserve scale theory and provides author抯 own opinion about it, then it probes into correlative economic factors that have impact on reserve抯 demand. Facing the fact that the increasing speed of China抯 foreign exchange reserve has declined dramatically since 1998, the paper discusses the stability and sustainability of the reserve. On the background of open economy, the dissertation penetrates into the impact of the increase of foreign exchange reserve on monetary policy and the harmonization of foreign exchange reserve policy, exchange rate policy and monetary policy which are under constraint of two simultaneous aims: keeping both exchange rate of RMB and domestic money supply stable. Finally the paper provides relative counter-measures on the reserve scale administration issue.