Research On The Gold As China's International Reserves

Because of aggregated current account surplus & surplus in the balance of payments since 2001, China's foreign exchange reserves increase at a high speed, and have exceeded Japan, become the number one in the world. However, the consecutive devaluation of the US dollar leads to the shrinking of our foreign exchange reserves. There is much risk in our reserves, so we must promote diversification of China's international reserves.This paper starts with introducing the structural management of our international reserves, then research the advantage and disadvantage of gold as the international reserves, analysis on the Risk-Earnings of gold reserves, determination on the suitable scale of China's gold reserves, the significance of gold reserves in China, and the approach how to increase gold reserves.After introducing the attribute of the gold, the change of status of the gold as the international reserves and the advantage and disadvantage of gold reserves, the third section mainly discusses the Risk-Earnings of gold reserves. Through the research, this paper concludes that there is a negative correlation between the change of gold price and US dollar's exchange rate, which illuminates that gold is a hedge against the dollar assets. From the supply and demand of the gold, so we can see that the gold price will rise in the long run, so gold is a good tool for storage of value. The forth section researches the moderate scale of China's gold reserves. The paper has adopted the Michael.P.Dooley Model and CAPM to establish the optimization model and concludes that the moderate proportion of China's gold reserves in the total reserves is 2%-5%. The fifth section mainly discusses the significance of gold reserves in China and the approach how to increase gold reserves. The result is that gold reserves play an important role in easing the problem of Excess Liquidity, promoting the RMB's internationalization and boosting the gold market in China. Also this chapter brings forward with the approach how to increase gold reserves. Finally, at the last section, this paper has provided some advices on the issue of gold reserves in the future.