Study On The Operation Strategy Of Chinese Foreign Exchange Reserves

The foreign exchange reserve is vital for an opening country. When the foreign exchange reserve grows in reasonable extent, it can balance the international payment, intervene in the foreign exchange market, and maintain the stability of local currency exchange rate and so on. However, it also pay a price for holding foreign exchange reserve which manifested in the low profitability of capital importation brought by it and resource waste etc. In addition, the rapid growth of foreign exchange reserve will easily cause some serious problems, such as failure of monetary policy, economic structure twist, an increase of international trade friction, and increase the pressure of RMB upvaluation etc.Chinese foreign exchange reserve is concerned by the all of the world. According to the data issued by authority at the end of 2008, the total amount of Chinese foreign exchange reserve had reached 1.95 trillion U.S. dollars, which is the largest foreign currency reserve in the world. However, U.S. dollar asset has shrunk by a large margin with the influence of financial crisis. And the security of Chinese foreign exchange reserve is threatened. Taking into account the scale of foreign exchange reserve and the current international environment, it's worth studying how to manage the huge foreign exchange reserve, reform the existing rigid management system, make a new type of management style, improve the operating performance of reserve assets to ease the stress caused by high foreign exchange reserve and reduce the risks and other related issues.First of all, this article analyzed the status of Chinese foreign exchange reserve, including size, structure and operating conditions. The quantitative analysis of the scale of foreign exchange reserve indicates that although Chinese foreign exchange reserve is huge, it is still reasonable and compatible with the FDI and other major economic variables. However, there are some serious problems on structural management, such as the singleness of assets structure; emphasis on credit currency investment; negligence of gold and other commodities; emphasis on safety and liquidity in investment but negligence of profitability, which lead to a larger loss in the investment efficiency; excessive administrative interventions in investment entities when running foreign exchange reserve and barely satisfactory investment performances.Secondly, high foreign exchange reserve will cause high cost and high risk of the national economy, besides it will threaten the stability of economy. Through the empirical analysis of the relationship between currency supply and foreign exchange reserve, this paper discovers that the high level of foreign exchange reserve indeed have a negative impact on the macroeconomic to varying degrees. In other words, the plight really exists in the scale management of foreign exchange reserve. And this paper also holds that there has a plight in structure management, i.e. restructuring will lead to a risk of substantial shrinking of the foreign exchange reserve assets.Thirdly, influenced by the rule of descending of marginalizing profitability, the assert management of foreign exchange reserve becomes difficult. Hence, in order to ensure the profitability of foreign exchange reserve, we should actively explore effective methods and strategies of operating and other specific matters, which are the most important to resolve the current problems in Chinese foreign exchange reserve and the aim of this study. Drawing on international experience and the operating status of Chinese foreign exchange reserve, this paper argues that China should adopt a moderate and positive market-oriented business model and strategy. In the aspect of expanding the utilization channels of Chinese foreign exchange reserve, this article proposes four kind of practical plans from the angles of state, enterprise and individual. The general idea is to actively develop policy-oriented financial services so as to improve the earnings of foreign exchange reserve and serve national economic construction at the same time. Aiming to be efficient in running of the policy, the efficient supervision and management and achievement evaluation will be carried out.Finally, perfect system guarantees the success of practice. According to the present domestic and foreign macroeconomic environment and the successful experience of foreign system reform, this paper proposes to reform the current management system and improve the legislation of Chinese foreign exchange reserve. However, the success of the operation of foreign exchange reserve can't radically solve the problems brought by high foreign exchange reserve. Therefore, seizing the opportunity and gradually realizing regionalization and internationalization of RMB is a effective prescription to resolve the problems of Chinese foreign exchange reserve.