On The Appropriate Scale Of China's Foreign Exchange Reserves

Repeated international financial crises show that keeping abundant foreign exchange reserve (FR) and effectively managing the reserve are an important measure to prevent the crises brought about by external factors, especially the crises brought about by the sharp fluctuations of capital account. China's foreign exchange reserve has amounted to 403.3 billion US dollars by December 2003, ranking the second in the word. Grain reserve has reached a historic high level. Its gigantic amount has been the focus of the debate among foreign and local researchers and professionals.This essay analyzes the moderation of China's current FR quantity, and on this basis brings forward several advises of the current FR management policies. It consists of two sections. In the first section, the author divides the history of china's FR into four phases, and it is a new phase from 2001 to current. After analyzed demand and supply factors that can influence the level of FR, the author analyzes the moderation of China's current FR quantity. By using composite proportion method, the conclusion is that the current FR amount is above moderate level. In accordance with the above moderate FR level, the management policies should be updated. There should be a rational distribution of different assets and currencies in the foreign exchange reserve. Therefore, in the second section, the author brings forward the advice that management policies should be different between the above and below amount of moderate FR level. To sum up, these advices are advancing the profit request and increasing the holding of EUR with US dollar still is the major portion in FR.