Research On Foreign Exchange Reserve Scale Administration Of China

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's foreign exchange administration reform in 1994, its foreign exchange reserve has reached more than 403.2 billion US dollars. Only second to Japan, China now is the second largest foreign exchange reserve holder in the world. Plenty of foreign exchange reserves show national ability of adjusting foreign market and holding exchange price. However, if the scale of foreign exchange reserve is too big, it often restricts economic development. Moderate scale of foreign exchange reserve is very important to economic security. China should hold moderate scale, because its determination has become an important content of foreign exchange administration.In order to study the enactment of foreign exchange reserve scale and the selection of policy, this paper is focused on the foreign exchange reserve scale and begun with the basic theory of foreign exchange reserves. It is absolutely necessary for China to keep moderate foreign exchange reserves scale. This paper analyses the situation and reason of continuous increase of Chinese foreign exchange reserves. A moderate determination model was constituted according to the demand of the foreign exchange and other factors. It was used to analyze China's 1990 - 2002 foreign exchange reserves. The result shows that they were overlarge on the whole. At the end of this paper, the author points out that the best way to regulate foreign exchange reserve scale is not to adopt extremely policy adjustment but to attach importance to the administration and application of foreign exchange reserve assets . This kind of policy is to reduce side-effect of foreign exchange reserve and alleviate the balance between opportunity cost and income. Besides, the author forecasts the prospect of the administration of our country under the floating rate system.