Management Of China's High Foreign Exchange Reserves

The financial crisis triggered by American subprime mortgage crisis in 2007 has swept across all over the world. The turbulence of financial markets increased seriously and the world economy is being full of uncertainty. China's foreign exchange reserves system which has a large scale and takes U.S. dollar as the main reserve currency is facing both opportunities and challenges brought by the financial crisis. To maintain and increase our high foreign exchange reserves'value, and keep the consistency and health of its economic development has already become a much-needed and careful decision-making research area. In this paper, the stock growth and structural change of China's foreign exchange reserves are analyzed while the mainly discussed part is the advantages and disadvantages of the rapid accumulation of foreign exchange reserves under the financial crisis circumstance. Finally, based on all the analysis above, I tried to give my suggestions of how to manage China's high foreign exchange reserves.In this paper, qualitative analysis and statistical analysis are combined to investigate the stock and structural management of our foreign exchange reserves. By using large numbers of initial data, diagrams and comparative analysis, I mainly illuminated the effects financial crisis has on China's economy and foreign exchange reserves and conclude that under the financial crisis circumstance, China's foreign exchange reserves scale should be moderately controlled and its rapid growth also should be inhibited. Furthermore, we also need to optimize the structure of its currencies and investments, as well as promote the reform of its management mechanisms and improve the operation of foreign exchange reserves and so on.There are five parts in this paper. The first chapter is introduction in which the background and meaning of choosing the topic, research approaches and contribution are introduced. The second chapter is the literature review of foreign exchange reserves. In chapter three, I reviewed the history of China's foreign exchange reserves from its shortage to its abundance stage, and analyzed the reasons to our high foreign exchange reserves. At the same time, as the formation of U.S. dollar being the internationally mainly reserved currency, I also investigated our foreign exchange reserves'currency structural arrangements and its change. In chapter four, I analyzed the effects financial crisis has brought to our economy as well as foreign exchange reserves and also measured the moderate-scale of our foreign exchange reserves from the demand perspective. Furthermore, I also studied the advantages and disadvantages as well as its current structural risk the high foreign exchange reserves faces. In the end, in chapter five, according to the financial crisis and the serious global economic situation caused by it, I gave appropriate suggestions and countermeasures to our high foreign exchange reserves including the scale control, structural optimization and active operation.My paper's main conclusion is as followings:although under the global financial crisis, the speed of our foreign exchange reserves increasing is slowed down, it is still over the proper demand which ultimately brings the long-term economic development negative effects. Simultaneously, high foreign exchange reserves also faces various risks caused by the financial crisis. So I suggested that we must control the scale of foreign exchange reserves strictly, optimize its currency and asset structure, widen its application approaches and enhance the management of foreign exchange reserves.