Study On Structure Management Of China's Foreign Exchange Reserves

Foreign exchange reserve is the subject of a country's international reserves. It is an important macroeconomic variable that reflects a country's economy and financial strength, which is more and more significant on macroeconomic adjustment. Since the reform of foreign exchange system in 1994, China has maintained rapid growth in foreign exchange reserve. By December 2009, foreign exchange reserve of China had reached $2.3991 trillion,most of the world and accounting to one third of total world foreign exchange reserve.Two core issues of foreign exchange reserve management are scope management and structure management. It is helpful to deal with practical problems of management and wise use of scarce resources to research the optimum scale of foreign exchange reserve. Current studies in this area are dealing with moderate foreign exchange reserve from different angles,which form a few methods such as proportion method, store-demand function and cost-benefit law. Structure option of foreign exchange reserve contains the choice of reserve currency, the weight and the specific form of it. There are three traditionally theoretical models of the structure option:portfolio theory model, Heller-Knight and Dooley model.In the writer's opinion, facing the 2.4 trillion of foreign exchange reserve, the most initial thing is not worrying about if it will keep rising, but studying how to manage it effectively and tracking out a management mode that is appropriate for China. Meanwhile, Through effective management, The aim is to increase positive effects and reduce negative effects.This text deeply analyses the current situation and problem on structure management of foreign exchange reserve in China though summing up relevance theory. Considering three theoretical models, it uses quadratic programming and empirical analysis on foreign exchange reserve currency structure. In the same time, it puts forward a series of strategies and suggestions by referencing the management experience of Japan and Singapore.