The Optimal Currency Structure Of Chinese Foreign Exchange Reserves

By the end of August 2015, China’s official foreign exchange reserves have reached 3.5 trillion dollars. High FX reserves has not only brought huge funds outstanding for FX, also faced the resulting write-off costs. Due to the unreasonable currency structure of Chinese FX reserve, it leads to a series of problems such as exchange rate risk, liquidity risk and the mismatch of function of FX reserve. At present, academic research about Chinese FX reserves mainly focuses on the moderate scale of FX reserves, less on the currency structure of Chinese FX reserve. The paper calculates optimization of currency structure in order to correct the current currency structure.First of all, this article analyzes present status and existing problems about the currency structure of Chinese FX reserve. Then according to three classical models Chinese FX reserve is divided into two categories, the first type category for trading FX reserves, the second category for allocating FX reserves. Then it measures optimization of currency structure of trading FX reserves and optimization of currency structure of allocating FX reserves. Finally, it calculates the optimization of currency structure of FX reserve structure and comes up with related ideas and suggestions.The first part introduces three models about the currency structure of FX reserve called portfolio-Model, Heller-knight-Model and Dooley-model and strengthness and weakness of three models.The second part mainly introduced present status and existing problems about the currency structure of Chinese FX reserve. According to the Tic and Cofer, the present currency structure of foreign exchange reserve is 50% to 55% in dollars,20% to 25% in euros,5% to7% inyens,15% to 17% in other currencies and pounds.Because of unreasonable currency structure of Chinese FX reserve, Chinese FX reserve faces a series of problems.In the third part based on the portfolio-Model, Heller-knight-Model and Dooley-model, Chinese FX reserve is divided into two categories, the first type category for trading FX reserves, the second category for allocating FX reserves. Trading FX reserves are affected by the factor of risks and benefits; Allocating FX reserves are mainly affected by the structure of foreign trade, the structure of foreign debt, source of foreign direct investment and exchange rate system.The fourth part measures optimization of currency structure of trading FX reserves and optimization of currency structure of allocating FX reserves. Finally, it calculates the optimization of currency structure of FX reserve and comes up with related ideas and suggestions.The optimal currency structure of foreign exchange reserve is 58.2% to 62.7% in dollars,11.9% to 15.4% in euros,4.9% to 7.3% inyens, 13.6% to 19.7% in other currencies and pounds.The fifth part puts forward related opinions and suggestions, mainly according to optimization of currency structure of China’s FX reserves calculated in the fourth part.Our country should appropriately reduce dollar assets of chinese foreign exchange reserves, the euro assets by half and increase other currency assets of chinese foreign exchange reserves and promote the internationalisation of the RMB and so on.