Theory Analysis And Empirical Study On The Demand Of China's Foreign Exchange Reserves

Needs of China's foreign exchange reserves has always been a hot spot of concern, most recently over the past two decades grew very rapidly , By the end of 2008,the foreign exchange reserves of China is nearly two trillion U.S. dollars which not only have exceeded Japan as the first one in the world ,but also took over more than the world's leading Group of Seven (G7) the sum of foreign exchange reserves. "Subordinated Debt" as the fuse of the financial crisis broke out in the United States, China's foreign exchange reserves sufficient to effectively guard against financial risks and safeguarding national economic security and financial stability; strengthening international liquidity, which is helpful to China's economic, political, diplomatic activities, and safeguard the image of great power.Although China's huge foreign exchange reserve had a positive impact on China in the financial crisis, but in this context that China's foreign exchange reserves have reached a dilemma: on the one hand, as China's sustained double surplus, continue to buy large number of low-yield U.S. Treasury bonds; the other hand, if the substantial depreciation of the dollar, we have to prevent foreign exchange reserves shrunk in the financial crisis in order to sell dollars in the in the secondary market, the decline in the dollar will intensify, leading to further China's foreign exchange reserves devaluation. Therefore, in the current financial crisis is far from settled and it is possible to further the context of bottom, we need to continue to study the demand of China's foreign exchange reserves, depthly analysis all factors affecting the demand on China's foreign exchange reserves . It also makes some suggestions on China's foreign exchange reserve for the Policy makers to effective management.This article draws on Frenkel's demand function analysis, using non-balanced analysis, abandoning the "actual holding that is the demand " the domestic research often a prerequisite for the introduction of assumptions, from the quantitative analysis, the use of co-integration theory, dynamic analysis method, derived through empirical studies of the impact of the demand for China's foreign exchange reserves and the establishment of long-term factors in the demand for China's foreign exchange reserves model and use it as the basis for the issue of China's foreign exchange reserves of the analysis and research. The results showed that: in the long term, total imports, foreign debt, balance of payments volatility and the opportunity cost of holding foreign exchange reserves that affect the demand for China's foreign exchange reserves of the main factors. We put the historical data of each variable into the equation of long-term needs,getting the demand quantity of foreign exchange reserves over years,compared to draw China's foreign exchange reserves holdings of the actual long-term situation of supply exceeding demand .By the end of this article,make some suggestions for the Policy makers response to the financial crisis...