Research On Moderate Scale Of China’s Foreign Exchange Reserves Based On Agarwal Model

Foreign exchange reserve is an important part of international economic of a country andalso is the core of international currency system.It is one of the important sign ofeconomic,and reflects the ability of the balance of international payments and exchange rate,it has become a important measure indexes of a country’s comprehensive strength. So thegovernment and financial institution has pay close attention to the foreign exchange reservegenerally. Foreign exchange reserve is related to a country’s international credit and financialsecurity, so it has been the focus in the academic circles of China. But after the reform offoreign exchange system in1994, China’s foreign exchange reserve has maintained a highgrowth trend, and has reached US$3181148000000by the end of2011.It can enhance theability of our country macroscopical adjusting control, ensure the international balance of ourcountry payments fluctuations, guard against and defuse financial risks and cope with variousemergencies. However, it is in light of actual strength of our country, also has brought muchnegative impact.The exess foreign exchange reserve can inhibit growth, hinder economicdevelopment, and it has got the attentions and controversy of the government andscholars.Therefore, the moderate scale of foreign exchange reserve is very important to acountry.This paper is based on the model of Agarwal of the method of cost and benefit. It uses theAdjusted model of Agarwal to empirical analysis the scale of foreign exchange reserve of ourcountry nearly twelve years, calculates the moderate scale of foreign exchange reserves, andcompares with the actual scale.This paper gets the conclusions, the foreign exchange reserve is insufficient and near to moderate scale before the2003, it is serious and superfluous statefrom2004and continue to climb,it has far more than100%from2007, and it is estimated thatthe scale of foreign exchange reserve with the serious oversupply situation will last, finallythis paper is put forward several policies and suggestions of the management of China’smoderate scale of foreign exchange reserve.Finally,the article puts forward some suggestions to the foreign exchange reservesmanagement of China from the government and civil:first,the government should to bestrengthen the monitoring of capital inflows especially short term capital,and increase theEuro and Yen assets in foreign exchange reserve proportion,and mature our country foreignexchange reserves currency structure to ensure the diversification;second,the governmentshould to be mature reform of RMB exchange rate formation mechanism and optimization offoreign exchange management mechanism and mature statistical system to prevent “hotmoney”;third,the government should to be expand the foreign exchange reserve investmentchannels, reducing the opportunity cost of foreign exchange reserve storage;fourth, thegovernment should to be improve China’s financial legal system and optimize the foreigndirect investment and enact the special law-“foreign exchange reserve management method”,and establish a more effective security warning mechanism;In folk, the government should tobe reduce the capital controls on inflows of foreign exchange appropriatly,balance,achieve inthe people.With the development of economy, the demand of folk is increasing.The stateshould formulate relevant legal policy, appropriate to relax the possession and use of foreignexchange, encourage the private foreign exchange to meet the needs of people, it can alsoreduce the growing burden of the foreign exchange reserves.