The Empirical Analysis Of Hold Motivation Theory For Foreign Exchange Reserves Of Major Developing Countries In Asia

The foreign exchange reserve is not only an important index for evaluating a country’s economic strength and financial strength, especially, the reserve problem has become a hot issue in international finance. The foreign exchange reserve is the "buffer" of a country’s financial system. It can adjust the balance of payments and maintain the currency’s international reputation. It can also enhance the ability to resist risk fluctuations.After the 1990s, the foreign exchange reserve of major developing countries in Asia grows rapidly. The stock and growth rate of foreign exchange reserves are at a higher level on a global scale. By the end of 2012, the data show that the global foreign exchange reserve has reached 10,936 billion dollars. The foreign exchange reserve of major developing countries in Asia is more than $4 trillion, accounting for more than 60% of global foreign exchange reserves. After the Asian financial crisis of 1997-1998, the foreign exchange reserve of major developing countries in Asia has enjoyed a continuous and rapid growth. The immensity of foreign exchange reserve has drawn wide attention with in academic circle. Some scholars believe that frequent financial crisis which make major developing countries’ precautionary motivation enhancement is an important reason of foreign exchange reserves increase. As huge amounts of foreign exchange reserves which major developing countries in Asia accumulate mainly occurred after the Asian financial crisis of 1997-1998, we can confirm that precautionary motivation play an important role in it. We need to study it carefully and find other reasons which also make the foreign exchange reserve increase.With foreign exchange reserves held motivation theory, this paper analyzed the Asian developing countries’transaction motivation and precautionary motivation. In order to analyze the precautionary motivation changes under the financial crisis, we establish a precautionary motivation analysis framework. According to the PPP theory, we introduce the variable to examine the major developing Asian countries’new mercantilist motivation. Using Asia 10 countries’data (China, India, Indonesia, Malaysia, Thailand, Cambodia, Vietnam, Laos, Kazakhstan) between 1995 and 2012, We construct a panel data model. The empirical results show that Asian major developing countries’accumulation of foreign exchange reserves reveals the presence of transaction motivation, and there is a positive relationship between it and foreign exchange reserves. Precautionary motivation has important influence on foreign exchange reserves, and modern precautionary motivation theory play an important role. The new mercantilism motivation affects Asian developing countries’accumulation of foreign exchange reserves.