Operation Of Sovereign Wealth Funds And Innovation In Foreign Exchange Reserves Management Of China

As one of the rising stars among international capital markets, Sovereign Wealth Funds plays more and more important role in reconstruction of global capital markets, pricing of financial instruments, raising of risk preference so that it attracts the attention of the world. Hence, besides of studying the operation and management of SWFs, it's a hush topic to coordinate the relation of SWFs and foreign exchange reserves.With review and reference of the previous efforts both home and abroad, this paper starts from case studies of Norway and Russia, creatively discusses the mutual effect between SWFs and foreign exchange reserves from the angle of Requirements Management Theory, makes use of VAR model to empirical analyze the investment demand of foreign exchange reserves with the seasonal data from 2000 to 2007, and finally makes some political ponder of improving the operation of SWFs and innovation of foreign exchange reserves management in China.The results came as follows: (1) the explanation of import and export net value, gross domestic product, relative inflation rate, relative interest rate to transaction motive and precautionary motive of foreign exchange reserve arrives to 90.39%; (2) from 2000, the investment demand of foreign exchange reserves in China demonstrates an increasing trend, except 2005 because of the innovation in currency regime; (3) between 2000 to 2007, it is estimated that the investment demand of foreign exchange reserves in China accumulates to 84.814 billion dollars, which is less than the current scale of SWFs in China under various influencing factors.