The Study Of The Impact And Management Strategy Of The Accumulation Of Foreign Exchange Reserve In China

China’S foreign exchange reserves reached3.31trillion US dollars until by the end of2012, of which more than3trillion US dollars was accumulated between2002and2012. Theaccumulation of China’S foreign exchange reserves was not an isolated phenomenon, butlinked with other important issues such as the global accumulation of foreign exchangereserves,"global imbalances", capital flow from poor countries to rich countries and theincome difference between the IIP. International capital flows paradox proposed by Summersdescribed all the above problems. So this paper is titled with "The Study of the impact andmanagement strategy on China Economy of the accumulation of foreign exchange reserve" inorder to put the study of the accumulation of China foreign exchange reserves in a broaderinternational context.The paper has five chapters, the first chapter introduces the general theory on mangingforeign exchange reserves: Chapter II discusses “the international comparision on foreignexchange reserve comparison, in particular east Asia countries’ foreign exchange reservemanagement model and the experiences that we can learn from: Chapter lIl is “The scale,reasons, and structure of China foreign exchange reserves accumulation: Chapter IVresearches the impact of the accumulation of foreign exchange reserves on China’S domesticeconomy, in particular the negative impact on domestic economy of the accumulation offoreign exchange reserve: Chapter V discusses strategy of foreign exchange reservesmanagement in China under such high speed accumulation environment, and proposedstrategies and policies on the management of the scale, structure, risks of the high speedaccumulation of foreign exchange reserves..The main conclusions can be summarized as follows：First, the phenomenon of China’S foreign exchange reserve accumulation was notisolated, but had a profound global background. Under the background of “Global imbalance”,The Asian emerging markets including China played an important role in the accumulation ofreserves and most of the reserves of these countries have financed the current account deficitof the United States.Second, China’S foreign exchange reserves have been far beyond the optimal scale. Ifwe analyze from prevention perspective, we used a modle covering imports, short term debtand broad definition of currency to confirm the optimal scale of foreign exchange reserve, andthe result based on the data from2003to2012shows that China’s actual foreign exchangereserve from2003to2006is within the optimal scale; in2007, actual foreign exchangereserve is very close to upper line of the opitimal scal; from2007to2012, actual foreignexchange reserve exceeds the opitimal scale limit and the gap has been increasing.Third, the domestic effect of China’S foreign exchange reserves accumulation wasdifferent from the general speculation. First, it is a complex process from the process of foreign exchange accumulation to inflation, within a specific period of time, inflation may notbe triggered only because the expantions of foreign exchange reserve: second, the low interstrate within China may benefit government authorities when they offset the market rate: inaddition, most state debt are mid to long term debt, short term debt is very rare, the issuanceof notes from china central bank didn’t separate or devide domestic public debt market, it alsotakes responsibilities of short term debt, the rate of central bank’s promoisory note hasprovided the foundation for setting up the interest rate for debt market.Fourth, as far as reserve currency allocation to be concerned, ratio of the euro should beincreased. Empirical study which used mean. variance model showed that if maximum ofexpected return is the target, the euro would have the greatest proportion of the allocationwhen the monetary authority chose reserve currency among dollar,euro and yen.