Dynamic Analysis Of China's Foreign Exchange Reserves

Until the end of 2006, the foreign exchange reserves of China have exceeded Japan as the first one in the world which has the largest foreign exchange reserves. Such substantive foreign exchange reserves have become the focus of home and abroad. Whether it has surpassed the real needs of our country and if it will do harm to our economic development or not is a hot issue in the theoretical and practical world. This article bases on the statistics of typical factors in China from 1984 to 2005, uses the co-integration theory and dynamical adjustment model to analyze the reasonable scale of the foreign exchange reserves. The results of the research show that the real holding volume of the foreign exchange reserves in our country is not enough comparing to our demands from 1999 to present and the gap may become larger in the future. So our government should take comprehensive measures to deal with the problem in order to maintain a low gap between the two variables.