The Research On The Effect Of Dollar Exchange Rate Change On Foreign Exchange Reserve

Foreign exchange reserve is an important economic index to open economic entity. It has the following functions to adjust international adverse balance of payment\ intervene in foreign exchange market and retain home currency stable,etc. Exchange rate is an external price and it executes price conversional function in domestic and overseas financial market. The change of exchange rate affects one country's balance of payments and economic activity. In these years the size of Chinese foreign exchange reserve keeps going up under the background of dollar exchange rate continous devaluation, which attracts decision-making leaders high attention. So it currently is an important problem to be urgently solved that how to manage scientificly and efectively foreign exchange reserve and realize its value and increment. It is a helpful exploration to analyse the relationship between the foreign exchange reserve and dollar exchange rate.Dollar is a core currency in international currency system and holds a dominant status. In recent thirty years dollar exchange rate changed frequently and the amplitude was large. High consumption rate and low savings ratio are the root of American economic framework imbalance. Huge financial deficits and enormous trade deficits decided dollar exchange rate's foreground. American government gave other economic entity, especially new and developing countries, trade surplus and excess foreign exchange reserve through trade deficit and "cheap" dollars' output. Then American government utilizes dollar's dominant status and forces other countries buy those financial assets marked price by dollar. In this way American government favoringly attracts a great deal of capital, fills up domestic capital gap and supports its national economy. In this capital circular process the change of dollar exchange rate exerts a key action on capital current.Dollar exchange rate directly influences our country's income and expenses through international income and expenses' two accounts and indirectly affects our foreign exchange reserve size. In our export trade the proportion of low add-ons-value products are the largest and the overseas elasticity of demand is also great. So the export trade is easily influenced by dollar exchange rate change. However in our import trade high add-ons-value product and staple raw and peocessed materials are the most and the domestic elasticity of demand is small. Accordingly the import trade can only passively accept the regulation of dollar exchange rate. In these years it is found that the relationship between the size of foreigners' direct investment and the change of dollar exchange rate is regular. The favourable balance of two accounts in our international income and expenses makes the size of foreign exchange reserve ceaselessly increase. It should be sufficiently considered that the exchange rate will play an large impact on our foreign exchange reserse size. That is significanr on operation to manage our foreign exchange reserse size.It is empirically studied what is the relationship between the size of foreign exchange reserve and dollar index\ the amount of exports and imports\ foreigners' direct investment amount. Regressional analysis methods are used with the annual data (from 1994 to 2008) to get out above relatonship quantitative model.The relation beween the size of foreign exchange reserve and dollar index is investigated as an emphasis. In addition cointegrational analysis methods are employed with the monthly data (from 1993 to 2008) to arrive at the long-run equilibrium of foreign exchange reserve and dollar exchange rate. Moreover short-run error correction model is applied to describe both short-run disequilibrium regulation equation.This research is innovative to some extent.In the end some pieces of advice are given in allusion to dollar exchange rate influence: Enlarge domestic demand, quicken industrial restructuring and release favorable trade balance.It is a fundamental solution to settle our long figure foreign exchange reserve; Strengthen foreign exchange market construction and managerial system reform. It is a route from market itself and national system; Advance foreign exchange capital abundant and Renminbi internationanlization. Currently it is a practical and feasible measure.