Rethinking On China's Foreign Exchange Reserves: Comparative Analysis On China And South Korea

China and South Korea have been actively participating in international trade and international financing recently. And since in 2000, Foreign exchange reserves of China and Korea have continued to increase. As more and more people have interest in the international reserves, this research is written in order to understand it through the theoretical research and decide on the proper amount of foreign exchange reserves through empirical analysis.The empirical analysis includes ratio-based and foreign exchange reserves with behavior equation analysis. First of all, the ratio-based approach enabled to compare the economic variables influencing the foreign exchange reserves and the percentage of international reserves for China, South Korea, other Asia countries, and Russia. This analysis includes GDP to foreign exchange reserves, amount of imports in 3 months to foreign exchange reserves, M2 to international reserves, and foreign exchange reserves to amount of short-term debt ratio for China and Korea. The result has revealed that China is comparatively in the higher level than the average ratio. However, Korea's estimated international reserves with the ratio analysis have come close to the proper value. The function of foreign exchange reserves behavior equation is estimated by behavior equation approach. The function of foreign exchange reserves drawn by economists adds general each country's behavior on, and setting the equation about foreign exchange reserves based on this function. Using this equation, I could estimate proper foreign exchange reserves of China and South Korea. After the ratio analysis and analysis of foreign exchange reserves with behavior equation analysis, I could conclude that China and Korea's foreign exchange reserves are excessive. Therefore, the PBC and the BOK should analyze cost and benefits to prevent the increasing burden of holding reserves. And, both governments should manage their excessive international reserves considering both profitability and stability.