Study On The Macroeconomic Determinants Of Foreign Exchange Reserves

By the end of 2009 the foreign exchange reserves in our country sharply went up to 2399.2 billion USD, which increased by 13600 times in last 30 years. This phenomenon attracts the attentions of scholars. Actually foreign exchange reserve is not an independent variable, it is affected by many macroeconomic determinants, and macroeconomic growth is the main factor that affect the foreign exchange reserves.Firstly this paper reach a theoretically analysis conclusion by demand function and supply function, that is the macroeconomic determinants of foreign exchange reserves are economic aggregates, volume of foreign trade, exchange rate and opportunity cost.Then from the balance of payments accounts, we find that direct source of foreign exchange reserves in china was double surplus according to our country's foreign exchange reserves status, current accounts contributed 70%,capital and financial accounts contributed 30%.At the same time this paper explain the reason.Positive part analyses the macroeconomic factors of foreign exchange reserves in China by Co-integration and VECM, its conclusion are as follows:For long-term equilibrium relations, volume of foreign trade is principal cause, economic aggregate is secondary cause, and exchange rate has no influence. We explain this by follow reasons: accompanied by huge double surplus, volume of foreign trade direct increased the foreign exchange reserves. Chinese huge economic aggregate need enough foreign exchange reserves to withstand outside impact. The lack of RMB exchange rate elasticity cause appreciation cannot change the advantage of goods made in China.For short-term relations, the fluctuation of foreign exchange reserves in China is affected by two factors, which include adjustment of co-integration function and the fluctuation of macroeconomic determinants.At last some suggestions are provided, which include releasing foreign reserves control, exchange stabilization fund, optimizing foreign reserve management and buying more gold reserves and oil reserves.