The Competitive Situation Of Main Currencies And The Analysis Of The Structural Management Of China’s International Reserves

With the dismembering of the Bretton Wood System, the competitive situation of currencies became diversified. Although the US dollar was no longer the only international currency, America’s powerful economy supported its currency to be the strongest international currency for the latter years. Until the Euro was born has the situation essentially changed. The Euro is the only one that can compete with the US dollar and they become the two super-currency in the world nowadays. However, the competitive situation is highly relative to the economy. China’s rising economic strength and international status actually push forward the internationalization of RMB. The change of the situation of currencies and the ongoing internationalization of RMB have forced us to think about the rearrangement of our total reserves.Presently our structural management exists three problems including the onefold structure, low investment returns and the lack of gold reserves. As of the foreign exchange reserves mainly make up the whole reserves and the reserve in IMF and SDR cannot be changed casually, the analysis will focus on the foreign exchange reserves and gold reserves------For the analysis of currency structure, we select the US dollar, Japanese yuan, Euro and Pound sterling and take gold into consideration at the same time. Based on the asset portfolio theory and monetary demand theory, we get the theoretical intervals of the US dollar occupies 50～55% with Japanese yuan 10～15%, Euro 18～23%, Pound sterling 4～6%,gold 3～7% and others 2～4% under the consideration of the proficiency and the internationalization of RMB. Additionally, the proportion of Euro will rise to 30～40% in the future. As for the asset structural analysis, we mainly focus on the asset distribution of the foreign exchange reserve namely the distribution of the assets between liquidity and investment demands. We calculate the scale of the assets for liquidity demand(consists of trading and interrupting demand for reserves) to get the proportion of 60% with the rest 40% for the profitability demand.In fact, such a structure is matched with the principles of safety, liquidity and profitability as well as the target of internationalization of RMB. When arrange the structure of the reserves, first, we need satisfy the liquidity demand for external paying to promise our national credit which is the basic support of the internationalization. Second, the progress of internationalization begins with the trading and then goes into the investment and reserves step by step. With respect trading, we should diversify the markets. We can realize it by affecting the trading structures, external debts structure, FDI, the economic strength, foreign exchange rate policy and the investment returns and the effects are conducted through the six factors. In this way, the structure of reserves can be adjusted and diversified naturally only with the hand of the market, increasing the investment returns as well as decreasing the dependence on the US dollar. During the progress, the scale of RMB as the settlement currency will increase which will create a solid foundation for the internationalization of RMB.