On The Rationality Of Foreign Exchange Reserves

The optimal scale of foreign exchange reserves is one of the most important issues in today's Chinese economy. The excess of foreign exchange reserves will cause of national resources squandered while less of the foreign exchange reserves will be a negative effects, such as influence government interventions in the currency market, balance international payments ability, reduce the international capital impact and avoid international financial crisis risks. To maximize our national interests and control the international financial risk, we should strengthen the management of the foreign exchange reserves and make their scale reach to a suitable interval dynamically.At first, the paper uses Foreign Exchange Reserves-Imports Ratio and Foreign Exchange Reserves-Foreign Debt Ratio to analyze the demand of China Foreign Exchange Reserves. It is found that Chinese foreign exchange reserves have grown substantially since 1978 and our government now owns a substantial amount of foreign exchange reserves.Second we combine the Proportion-Analysis Method and Exponential Growth Model as well as adopt the concept of Confidence Interval to research the foreign exchange reserves. Through the study, it is found that during the recent 30 years, both of actual supply and potential demand of foreign exchange reserves in China have followed the path of exponential growth. China has been experiencing the surplus burden in the accumulation of foreign exchange reserves thanks to the actual growth rate exceeding the ideally demanding growth rate of foreign exchange reserves.The paper then modifies the Agaraual Model to estimate the appropriate scale of the foreign exchange reserves of China.In addition, based on the Adaptive Anticipation-Partial Adjustment Model and the Two-Stage Least Squares Regression, We find that the growth of the first-order lag term and international trade size will significantly increase our foreign exchange reserves while the growth of foreign capital investment utilization will gradually reduce our foreign exchange reserves.At last, the paper puts forward the effective resolutions and countermeasures to resolve the issue of excessive China foreign exchange reserves.