Study On The Foreign Exchange Reserve's Management In China

As the main part of international reserve, foreign exchange reserve is a significant macroeconomic variable reflecting one country's economic and financial power. Its ability to adjust macroeconomic is becoming more and more important nowadays. By the end of March, 2007, the total amount of foreign exchange reserve in China has reached 1202.03 billion USD, outclassing any other country in the world. On one hand, the rapid growth of foreign exchange reserve indicates that the economic status of China is elevated and the ability of resisting international financial risks is strengthened. But on the other hand, it also brings great challenges to our management. Facing such huge sum of foreign exchange reserve, how improve our operation and management? This paper tries to make a deep and comprehensive research on the management of foreign exchange reserve in China, based on past research and combining with both foreign successful experience and domestic practical situation.This paper is composed of five chapters:Chapter 1 introduces the background of this research and the past route of the relative research both in domestic and abroad.Chapter 2 draws the theoretical outline of foreign exchange reserve as well as its management, including the definition and function of foreign exchange reserve and the content and objective of its management.Chapter 3 discusses the improvement of foreign exchange reserve's management system in China. At the base of the developing route of the system in our country and drawing lessons from foreign management experience, the paper conceives a new system. That is, foreign exchange reserve should be divided into liquid reserve and surplus reserve, and the two parts are managed by Central Bank and Ministry of Finance separately.Chapter 4 is mainly about liquid reserve's measurement. Under the new system conceived in chapter 3, the paper defines the foreign exchange reserve's suitable amount and sets up a model measuring the demand for suitable amount. Using the historical datum from 1994 to 2006, the paper gives an empirical analysis, calculating the amount of liquid reserve and then that of surplus reserve.Chapter 5 mainly tries to research on the structure management of foreign exchange reserve. Due to the different management objectives and principles of liquid reserve and surplus reserve, the paper lays different emphasis on them. To liquid reserve, it conducts empirical analysis on currency portfolio and gets the current suitable currency structure. To surplus reserve, the paper makes a trial investigation of expanding its investing channels.