The Selection Of China’s Foreign Exchange Reserve Structure In The Post-crisis Era

China, which reserves highest assets in the world, has a large sum of foreign exchange reserves. By the end of 2013, China’s total reserves is up to $ 3.82 trillion, which has risen 17-fold from the same period of 2001. China bears high opportunity cost and high risk of loss with such high reserves, and has not used it effectively. It is reported that the rate of return of our reserve assets remains in a lower level, and negative yields occurred in the past. Therefore, in this context, how to improve the profitability of China’s foreign exchange reserves and make a more reasonable arrangement for the currency structure of reserve assets to realize the diversity management, with premise of ensuring the safety and liquidity of the reserve assets, has become a problem.This paper analyses the factors which influence the currency portfolio of foreign exchange reserve, such as the level of economic development of different countries, structure of the trade balance, fluctuations of exchange rate, debt structure of a foreign country, the monetary value of the yield and risk factors, in reference to current currency selection of foreign exchange reserves and the current development of emerging market countries. The paper is expected to explore the optimal structure of foreign exchange reserve under the constraint of variance and benefits by combining with the portfolio theory, and it established the GARCH model to analyze fluctuations of each currency yield, and calculated the risk level of each reserve currency. The paper also introduced Korean Won and the Russian Ruble as the representatives of emerging market currencies into the structure analysis of reserve. The study shows that our foreign exchange structure, mainly denominated in U.S. dollars as a reserve currency asset, is reasonable, and the profitability of foreign exchange reserves of China can be increased to some extent, if we put some currencies of emerging market countries into our reserve basket and in the meantime keep US dollars as the main reserve assets. The overall portfolio risk of the reserves could be reduced at the same time. The euro-zone economic recovery will take some time, so it is recommend an appropriate reduce of euro holdings. Yen exchange rate was depreciated by a large margin. Faced with high investment risk and low investment yield of yen, it is recommended that the proportion of yen in reserve assets should be appropriately reduced.