Research On Holding Cost Of Foreign Exchange Reserves

Foreign exchange reserve (FER) plays an important role for one country’s economic development and stability. As soon as the Asian financial crisis finished, most countries and areas, especially in Asia, enlarged their scale of foreign exchange reserves. By the end of2010, China’s FER has reached2.847338trillion us dollars. By the end of2011,it reached$3.181148trillion, which increased nearly19times in10years. The scale of foreign exchange reserves growth, improves the competitiveness of China in the international economics, and enhance the foreign currency payment regulation of our country and the ability to stabilize economics fluctuation. But huge reserves and its faster growth challenges China’s monetary authorities with new risks of management and control. China’s economy is undergoing great changes, many scholars do not touch some research fields and have not been involved in the influence factors. This paper is for China’s exchange rate system reform and such a large-scale capital flow on the influence of the largest foreign exchange reserves should be analyzed, and how to construct a reasonable structure of foreign exchange reserves. It is difficult to calculate the holding cost of foreign exchange reserves currently in our country, especially for foreign exchange control. In this paper, analyzes the history of the Chinese FER structure, the present situation to carry on the thorough research analysis, summarizes the characteristics of the FER management, a detailed analysis of the current foreign exchange reserves management problems of our country, analyzes the reasons, and points out that these problems lead to the FER management inefficiency. Based on above analysis, with taking foreign exchange reserves risk management theory as reference, together with the theory about moderate scale of foreign exchange reserves in the western economics, the paper is going to analyze the factors which affect on the supply and demand related to our country’s growing foreign exchange reserves for long-term, measure the holding cost of our country foreign exchange, and establish the holding cost estimation model. The specific policy will be recommended to reasonable structure and risk control mode construction according to the empirical results to our country foreign exchange reserves and the scale effect.