China's Foreign Exchange Reserves Moderate Scale Research

Over the past30years of reform and opening-up, China’s foreign exchangereserves hit new high unceasingly, and surpassed Japan in2006, holding the largeststockpile of foreign exchanges in the world. The influence of foreign reserves uponChinese economy has aroused much thinking and discussion about whether theChina’s reserves is appropriate. In terms of theory, the author first has combedinternational and domestic theories about the moderate scale of foreign exchangereserves, and then analyzed it from both of the motive of basic monetary demand andthe cost-income theory. Finally, we can draw the conclusion that there is a range forthe moderate scale of reserves. In terms of demonstrtion, this article has analyzed thebasic foreigh exchange reserves demand and obtained a low range of foreignexchange reserves. Second, the paper has educed the upper limit of the moderate scaleunder the analysis of the modified Agarwal model. So, these two facts taken together,the article computes the moderate scale of China reserves with the economic datafrom1981to2011and concludes the China’s exchange reserves is too much. Finally,this article analyses the causes of the fast growth of China’s exchange reserves fromfour aspects and makes suggestions on how to effectively control and manage China’sforeign exchange reserves.