The Research On Risk And Prevention Mechanism Of China’s High Foreign Exchange Reserve

China has the largest amount of foreign exchange reserve in recent years, high foreignexchange reserve is an important indicator of our national power, plays an active role inbalancing of international payments and promoting economic development. However,excessive foreign exchange reserve also has the negative influence to the domestic macroeconomic; our high foreign exchange reserve has many problems in currency compositionand asset utilization. The article analyses the history and formation of our high foreignexchange reserve, analyses the risk of excessive foreign exchange reserve and the status ofthe structure management, based on the foreign exchange management experience of Japanand Singapore, the article brings about some recommendations to improve the riskmanagement of our high foreign exchange reserve.The article is divided into six chapters. Chapter I analyses the background andsignificance of the article, Summary of the research results in appropriate size and structuremanagement of the foreign exchange reserves at home and abroad, and introduces theresearch methods, innovation and shortcomings. Chapter II analyses the history andformation of our high foreign exchange reserve. In Chapter III, Considering China’s actualconditions, we establish adjusted model of Agarual, based on adjusted model of Agarual,we calculate the appropriate size of foreign exchange reserve of china and compare theresult with the actual data of China’s foreign exchange reserves．We find that the actual sizeof China’s foreign exchange reserves has far exceeded the appropriate size optimal size ofChina’s foreign exchange reserve．Chapter four analyses the status of the structuremanagement and it’s risk. Chapter five introduces the foreign exchange managementexperience of Japan and Singapore. Chapter six brings about some recommendations toimprove the risk management of our high foreign exchange reserve: we must control thescale of foreign exchange reserve，optimize the currency structure of foreign exchangereserve, broaden the application approaches of foreign exchange reserve, promote theinternationalization of the RMB.