China's Foreign Exchange Reserves, Risk Prevention

The foreign exchange reserve is a very important assest of one country to adjust its economy, especially to such a big developing country which has a rapid economic growth and opens its market more and more widely. From shortage to the largest holder, the foreign exchange reserve problem of China has attracted more and more attention from the world.Due to its main functions of maitaining the ability of international payment, intervening the foreign exchangee market, guranteening the international credit and dealing with the unexpected emergency, one country has to hold a certain amount of foreign exchange reserve, but meanwhile holding the foreign exchange reserve has many risks to some extent, so many researchers have studied it from different angles. Based on these research results, this essay chooses the angle of risk, in order to do a research on the risk prevention of the foreign exchange reserve.The text consists of 5 chapters and focuses on the demonstration of the risk prevention measures. The general frame is that combining the related theories and the particular situation of China, it firstly analyses the origins and risks of China's foreign exchange reserve and finally gets the conclusion that controlling the scale, improving the structure and coordinating the relative policies is a better way of preventing and reducing the risks.In the preface, it introduces the background, significance and status of doing such a research. Chapter 1 is the academic foundation of the whole essay which includes two parts, one is the concept of foreign exchange reserve and its relation with the related concepts, the other is the suitable scale and strture theory of foreign exchange reserve. Chapter2 maily analyses the situation, origins and risks of China's foreign exchange reserve and indicates that with the influence of macro economic environment, double-surplus of the international payment and institutional factors, China's foreign exchange reserve presents the traits of large scale, rapid growth and improper structer, so not only the reserve itself has the risks, but also it brings risks to the macro economy. Chapter3 adopts the suitable scale theory to analyse the quantity of China's foreign exchange reserve and finds that it has exceeded the reasonable demand. It then tells how to reduce the double-surplus of balance of payment to control the increase of foreign exchange reserve from the direct origin. According to the struture theory, Chapter 4 comes up with the ideas of improving the structure of the foreign exchange reserve: one is that, to the within-suitable-scale part, maitaining the liquidity is most of importance, so it needs changing the structure of currency and asset. The other is that, to the excessive-scale part, it needs managing positively and increasing its profit. Considering the specical risks that foreign exchange reserve brings to the macro economy, Chapter 5 shows a series of policy coordidating suggestions, including encouraging consumption, reforming the foreign exchange settlement system, keeping the independence of monetary policy and carrying out the capital-free-flow and currency-free-exchange in the long run.