On The Appropriate Scale And Structure Of China's Foreign Exchange Reserves Management

China has become the country with the largest amount of foreign reserve due to the rapid accumulation of recent years. It has become an urgent issue as to how to effectively control the size and optimize the structure of our enormous foreign reserve. Based on the related theories of the optimal size and structure management of foreign reserve, this article utilizes ratio analysis, cost-benefit analysis and regression analysis to estimate the optimal size of China's foreign reserve with the conclusion that our foreign reserve oversizes the optimal level. As to the reasons, both surplus in current and capital accounts, ever-growing size of foreign debt and the inflow of international hot money all contribute to the oversized foreign reserve. After that, this article probes into the influence of excessive foreign reserve. On the positive side, foreign reserve can stabalize and stimulate the national economy, lower the national cost of debt and protect the economical and financial security of the country; on the negative side, it will also retrict the active monetary policy, aggraviate the appreciation pressure of RMB and internal inflation, threaten the principal value of the reserve per se and make it harder to get favorable policy from IMF. Last, after learning from the experience of other countries, this article brings about some recommendations to improve the struture management of our foreign reserve.