Appropriate Scale And Structure Of China's Foreign Exchange Reserves Optimization

Since the21st century, owing to the international balance of payments surplus, direct investment and net capital inflows, the scale of China’s foreign exchange reserves is becoming larger and larger. By the end of2012, the national foreign exchange reserves amounted to$3.31trillion, and ranked first in the world for seven consecutive years. Based on the analysis of foreign exchange reserve related theories, this paper discussed the growth status, characteristics and changes in the structure of the reserve source of China’s foreign exchange reserves, and explored the deep-seated reasons for the rapid growth of it. We also measured and judged the optimal scale of China’s foreign exchange reserves from an empirical point of view. It concluded that, no matter what method of calculation, it was an indisputable fact that the scale of China’s foreign exchange reserves is greatly surpassed a reasonable level.As the core of the paper, this paper also layed emphasis on the research of the currency and asset structure of Chinese foreign exchange reserves, and discussed its risks and problems. It concluded that the currency structure of China’s foreign exchange reserve was too single, and its assets structure was too concentrated in dollar bonds. So it needed to be further adjustment and optimization. We measured the exchange rate risk of China’s foreign exchange reserves through the value at risk, and it came to the conclusion that the risk of holding pounds, Japanese yen and euro respectively is2.64times,2.24times and1.61times to US dollar. Therefore, it showed us that holding large amount of dollar assets in China also had its rationality from the perspective of positivism.In the aspect of the optimal allocation in the currency structure of China’s foreign exchange reserves, combining with the Heller-Knight model and Dooley model, this paper concluded the optimal currency weights of China’s foreign exchange reserves through empirical analysis. And in the aspect of the optimal allocation in the asset structure, we use U.S. dollar assets as an example to carry out the empirical research. It concluded that we should raise the investment of the AAA-rated corporate bonds in the United States, basing on the safety and liquidity of China’s foreign exchange reserves, so as to improving the overall portfolio returns. In addition, because the equity investment was helpful to realize the adjustment and transformation of China’s economic growth mode, so an appropriate increase in the proportion of equity investments was also a direction of the adjustment of U.S. dollar reserve assets.This article believes that only by keeping a reasonable growth of China’s foreign exchange reserves at the source, and making physical assets combination of the surplus of the reserve nature reserves for the diversity, can we reduce the risks which are difficult to control. Finally, the article put forward the optimization path and countermeasure of China’s foreign exchange reserves according to the research results of the full text, including: to maintain a reasonable scale of foreign exchange reserves, to optimize the currency and asset structure of China’s foreign exchange reserves, to increase physical gold reserves, to improve the management of foreign exchange reserve system and so on.