| Foreign exchange reserve is the most important part of a country’s international reserves, is the liquid asset held by a country to adjust the internal and external economic balance. With the development of China’s economy and foreign trade, China’s foreign exchange reserve has been accumulated rapidly since the eighteen fifties. However, the huge foreign exchange reserve brings China harsh dilemma in management. Research on foreign exchange reserve’s optimal scale and the structure of supply and demand can provide specific strategies for the management of China’s foreign exchange reserve.On the basis of background introduction and previous theoretical studies both home and aboard, the paper introduces the development and current situation of China’s foreign exchange reserve, analyses the causes and impact of China’s huge foreign exchange reserve. The paper then makes am empirical research on the optimal scale of China’s reserve from1994to2011by using improved Agarwal model, makes in-depth study into supply and demand structure of China’s foreign exchange reserve and measures the stable stock of China’s reserve by studying the stability of the reserve’s supply structure. Finally, with reference to the foreign exchange reserve management experiences of Singapore and Norway, the paper proposes relative recommendations on management bodies of China’s foreign exchange reserve.The results came as follows:China’s foreign exchange reserve was inadequate in1994to2001, optimal in2002to2003, superfluous since2004and the gap between the real and the optimal reserve has been increasing. The foreign exchange reserve accumulated through the channels of trade surplus in goods and the inflow of FDI is stable. After removing the hot money mixing in the trade surplus and FDI, the stable stock of China’s foreign exchange reserve is2760billion dollars, accounting for approximate87%of the whole reserve, which indicates the high stability of China’s foreign exchange reserve structure. |
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