Study Of China's Foreign Exchange Reserves Management Issues

Foreign exchange reserve is an important part of international financial issues. In recent years, China's foreign exchange reserve continued rapid growth. On one hand, it indicates that there have been great advances of China's economic development and strength of resisting the international financial risk. On the other hand, the rapid growth of China's foreign exchange reserve has had negative effect on the operation of China's economy. For example, the inflationary pressure caused by the huge foreign exchange reserve, the independence of monetary policy, and the impact on the pressure of the RMB appreciation. Huge foreign exchange reserve, which also makes it more difficult for operating the foreign currency reserve assets, has brought new challenges to China's current foreign exchange management system. So we should be concerned about the foreign exchange reserve scale administration of China, and consider how to adjust the scale of China's foreign exchange reserve. At the same time, we should use reserve in a more effective way. This paper use theoretical and empirical analysis method to undertake a study, which combines with China's situation in the last years and the past research on foreign exchange reserve scale administration.This paper details on the foreign exchange reserve management system of the historical evolution, introduces the management and the status quo discussed of China's foreign exchange reserve. This part analyzes the reason about the rapid growth of China's foreign exchange reserve, and also the impact of this phenomenon.This article also uses Co-integration Theory and Error Correction Model to analyzes the relation between several economic variables with China's foreign exchange reserve. These variables include the gross domestic product (GDP), imports (IM), exports (EX), the average exchange rate (ER), the money supply (M2).The last part of this paper is about policy suggestions. One is to adjust the scale of foreign exchange reserve, including adjusting the current account and capital and financial account surplus, expanding domestic demand and promoting internal and external balance, as well as foreign exchange management system reform. Another is to improve operating on China's foreign exchange reserve. In these ways, we can improve the foreign exchange reserve scale administration of China.