Study On The Suitable Foreign Exchange Reserve Scale Of Our Country

Foreign exchange reserve is the core of the international monetary system and of vital importance in the area of international financial research. It concerns the governments' ability of adjusting balance of payment and stabilizing exchange rate, and all financial authorities keep close watch on its development. At present, the flow of international capital is accelerating. Although this facilitates the development of the world economy, it makes the economy to be more volatile. The function of foreign exchange reserves is not only to ensure the payment for the import, but also to prevent the negative effect of the capital flow, to stabilize the foreign exchange rate and to strengthen the confidence of foreign investors. The discussion on the sufficiency of foreign exchange reserves has become an important research in the international finance field.But at the same time, too much foreign exchange reserves can also bring negative influence to a county's economy, which include the high opportunity cost and the restriction to monetary policy. So, moderate scale of foreign exchange reserves is so important to economic development.China is integrating as an important player in the international economy with its progress of reforms and open market economic policies, and with the rapid development of the world trade and economic integration. China succeeded in the reform of foreign exchange management system in 1994, and then began to carry out the single, managerial, floating foreign exchange rate. It realized the convertibility of current account in 1996, while the amount of foreign exchange reserves continuously keeps increasing, which effectively helped China avoid Asian financial crisis and stabilize the foreign exchange rate. By 2007, Chinese foreign exchange reserves rank the top in the world, more than Japan, which amount to $1528.2 billion. It gets the wide attention of the world that Chinese foreign reserves keep increasing on the base of huge scale. Its gigantic amount has been the focus of the debate among foreign and local researchers.This paper is to measure the optimum amount of Chinese foreign exchange reserves,and the models are constructed on the basis of the systematical research of theories, considering the reality of China.