Research On Optimal Scale Of Foreign Exchange Reserve Of China

The 1997 financial crisis have made each country in the world realized the importance of foreign exchange reserve. In recent years, with the growth of our country's economic and the reform of exchange rate regime, the total amount of foreign exchange reserve of our country is soaring rapidly. However, the concept of the more, the better doesn't apply to reserve. A country's foreign exchange reserve should keep a proper scale should be in a due proportion with the country's economic level.On the basis of background introduction and some relevant research on the scale of foreign exchange reserve made by scholars from home and abroad, at the beginning the paper has made a descriptive analysis on the reserve of our country, including the general growth situation, the causes of continuous development and both the positive and negative effects brought by the extremely large scale of the reserve.The paper then makes an empirical research on the scale of the reserve of our country from 1991 to 2010 by making use of Agarwal model and factor analysis and comes to conclusions: The reserve in 1991 to 2001 was inadequate, moderate in 2002 to 2003; the reserve began to overrun since 2004 and the gap between the real and the moderate became bigger and bigger. It is in this period that the reserve of our country had experienced a rapid growth. In empirical research, the paper, based on Triffin's proportion analysis, attempts to establish an alert model of foreign exchange reserve in a hope to bring some help and guide to the positive management of our country's exchange reserve.Finally, this paper aiming at the excess reserves in China's foreign exchange reserves put forward two aspects of management content and corresponding countermeasures.