The New Rmb Exchange Rate System, China's Foreign Exchange Reserve Structure Rationality

Foreign exchange reserve is the main part of the international reserve. The managem--ent of foreign exchange reserve is not only related to one country' s ability to adjust the balance of payments and keep a stable exchange rate, but also to the sustainable development of economy of a country. The foreign exchange reserve has been developed very fast since the reform of the system of the foreign exchange management in 1994 in China. From 51. 6 billion in 1994 to 818.9 billion in 2005o The foreign exchange in our country has reached 875.1 billion at the end of March in 2006. This exceeded Japan and became the No. 1 of the world. Facing such a huge sum of foreign exchange reserve, how should we manage it to not only evade the risk of exchange rate but also obtain higher yield?First this paper will analysis the process of the management of our foreign exchange reserve and the development characteristic of the world' s foreign exchange reserve. Then it chooses the currency kinds of our foreign exchange reserve under the new system of RMB exchange rate combining our country' s situation and factors in other aspects. Next on the bases of these, this paper will make a deeply study of our Foreign exchange reserve' s frame problem by quantitative analysis, using the Modern Portfolio Theory of Markowitz, the model of Heller—Knight and the model of Dooley. In the end, according to the conclusion, it brings forward some corresponding advice to improve the management of currency kinds' frame of our foreing exchange reserve' s and the Portfolio.