Study On The Dynamic Optimal Models Of The Foreign Exchange Reserve's Management

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. Since the reform on foreign exchange regime in 1994, the foreign exchange reserve has kept a fast growth, and by the end of 2007, the total amount of foreign exchange reserve in China has reached 1528.2 billion USD, outclassing any other country in the world. 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 for any country the more the better is not always correct on the question of the amount of the foreign exchange reserve. And this is the question called the moderate scale. When we research the reserve scale, we shouldn't neglect the research for the structure management of reserve, mainly including the choice of reserve currencies, the ratio of every reserve currency in the whole reserve asset and the concrete style of the reserve. The scale and the structure management are just the key questions of the foreign exchange reserve management.In methods, this paper tries to use system theory and optimization theory for researching the optimal size and dynamic control of foreign exchange reserve. As to scale management of the foreign exchange reserve, this paper establishes some optimal control models which include one group of state models basing the cost-earning rule, another group of dynamic models basing the theories of modern optimal control. As to structure management, this paper brings forward the principle of selecting reserve currency under the trend of reserve currency transforming from single currency to multi-currency, and explores how asset selection theory can be used in the optimization management of reserve currency structure.This paper begins with scale management and structure management for foreign exchange reserve, and analyzes relative problems of foreign exchange reserve management. By combining theories and practices, this paper puts forward some policy suggestions which may be suitable for China's current status.