Risk Early-warning Analysis Of China's Foreign Exchange Reserves In The Context Of Capital Outflow

China's capital and financial account's deficit over the past two years has led to a continued decline in the size of its foreign exchange reserves.Since the second quarter of 2014,China's foreign exchange reserves have declined by more than 20%.In such a new context,it is of great significance for China to strengthen the overall management of its foreign exchange reserves,review the theoretical framework of its early-warning system,develop new measures to mitigate foreign reserves risks,and realign its risk early-warning system,and give targeted policy proposal against the risk from the early-warning system.By using the early-warning indicators of International Monetary Fund(IMF)and indictors of foreign exchange reserves risk,we set five indictors,analyze the data of relevant early warning indicators of China's foreign deserves from 1996 to 2015,and find the risk characteristics of China's foreign exchange reserves in the past 20 years,dividing them it into three stages.Then,the Monte Carlo simulation is used to measure the possible outcomes and probability distribution of China's foreign reserves from 2016 to 2020.Based on the probability of occurrence of the five indicators selected,we conclude that China's foreign exchange reserves will decline in the next five years,the short-term external debt scale will increase,the RMB exchange rate will become volatile,and the risks of China's foreign exchange reserves in the next five years will grow.Finally,recommendations on the risk management of China's foreign exchange reserves are proposed,which includes:(1)stabilizing its foreign reserves size and exchange rate,(2)adjusting the currency structure in foreign exchange reserves,(3)reducing the scale of short-term external debt as well as the proportion of US dollars in its reserves assets,and(4)establishing strict management measures to reduce the probability of occurrence of operational risks in the foreign exchange reserve management system,so that China's foreign reserves risks could be reduced.