China's Foreign Exchange Reserves Quantitative Analysis

The foreign exchange reserve is a core of the international monetary system, and it is an important problem of the international finance field too. It concerns the ability of various countries regulating the international revenue and expenditure and the ability of stabilizing monetary exchange rate, and it has been receiving the general concerns of the international financial institution and governments of various countries all the time. Since the system reform of the foreign currency has begun in 1994, foreign exchange reserve of our country increases rapidly, whose scale is up to 81, 890 million dollars as of the end of 2005. Due to the increasing foreign trade surplus and foreign capital flowing into the China, the foreign exchange reserve has increased to 85,360 million dollars as of February, 2006. China has exceeded Japan as the first country of the largest amount of foreign exchange reserve all around the world.The impact of great amount foreign exchange reserve on economy of our country is enormous. Whether the foreign exchange reserve of China meets the need of China's economic development, how large should the appropriate scale of the foreign exchange reserve of China is it have been questions of the dispute in theory circle all the time. However;an undoubted one is, setting up the reasonable scale of the foreign exchange reserve is the important insurance that the people of our country help the healthy, stable and sustainable development.The first part of this text is on the basis of defining that defines concept of appropriate scale of the foreign exchange reserve, summarizes the pluses and minuses of different demand theories of the reserve, and chooses the appropriate theory—cost and benefit analyzing theory to calculate the scale of foreign exchange reserve of our country.The second part of this text chooses the main economic variable that may influence the demand of foreign exchange reserve of our country, analyze, find out the variable that can reflect the demand of foreign exchange reserve: of our country most exactly according to the analysis result, then carry on trend prediction according to foreign exchange reserve and relation of these variables, offer reasonable foreign exchange reserve scale to judge the foreign exchange reserve scale our country hold have on the high side really at present according to this serious degree. The text chooses the Agarwal model to analyze but there is disadvantage of this model, thusthe author modifies this model and calculates the appropriate scale of the foreign exchange reserve of our country according the data by using the Agarwal model.The third part of this text states the management model and the straits of foreign exchange reserve of Southeast Asia, compare this management model and use the advantages for our country's reference. Meanwhile the text proposes the guiding recommendations to rationalize the scale of foreign exchange reserve of our country.The forth part of this text first compares the advantage and disadvantage the great amount of the foreign exchange reserve of our country. Then suggest we should strategically transfer the foreign exchange reserve system of our country and set up the integrate foreign exchange reserve system including power reserve, foreign exchange monetary reserve, foreign exchange bond reserve and strategically material reserve. At last the text suggests we should perfect our foreign exchange reserve market in order to realize the aims of foreign exchange reserve management—liquidity, security, and benefit.