China's Foreign Exchange Reserve Structure To Optimize The Management Study

These years, China's foreign exchange reserve has maintained rapid growth. By the end of December 2008, the official holding of foreign exchange reserves of the total 1,946 billion U.S. dollars, still the first in the world to scale. Under the global financial crisis, continuing appreciation of the RMB and long-term context of the depreciation of dollar against other major international reserve currency, China's foreign exchange reserves has suffered serious losses, but also a huge social cost. In accordance with the relevant information, more than half of our country's foreign exchange reserves invested in the United States long-term bonds. Continued depreciation of the dollar against the backdrop of the reserve value of not only faces a serious exchange rate risks and there is a high opportunity cost, and overall yield is low. Optimizing the structure of the foreign exchange reserves of our country, alleviating the structural risks of foreign exchange reserves and avoiding loss of it is urgent and necessary.In this paper, both theoretical and empirical analysis has been done on the side of the status quo of China's foreign exchange reserves and world trends in foreign exchange reserves management. It discusses the optimal currency composition of foreign exchange reserves and foreign exchange reserve asset allocation optimization problem from the investment point of view on the basis of China's foreign exchange reserves at the current situation and the world's foreign exchange reserves management trends analysis. Through analyzing and comparing the shortcomings of the traditional selection assets model, this article introduces the study of Prospect Theory of Behavioral Finance and constructs a portfolio model based on the ARUM algorithmic, and it's more in line with the psychology of the central bank investment. It calculates our country's foreign exchange reserves of the optimal currency structure and asset structure combined with the history available data. With the M-V model comparison of investment performance, it verified validity of the ARUM portfolio model. Through comparing the results of the model to our country currency structure and asset structure of the status quo, it gives the policy recommendations which can optimize our country's foreign exchange reserves structure.