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Management of China's foreign exchange reserves: a case study on the state administration of foreign

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  • Yu-Wei Hu

Abstract

Summary for non-specialistsWith rapid economic growth and continuing economic integration with the outside world, China's foreign exchange (FX) reserves have witnessed considerable accumulation. As of 2009 it amounted to USD 2.4 trillion, accounting for just under 1/3 of the global FX reserves. Rapid growth of FX reserves at this speed has created various problems, e.g. inflationary pressure and huge holding costs.In this paper by analyzing the SAFE - Chinese governmental agency in charge of administering the FX reserves in the country, we review how Chinese FX reserves are currently managed and their performance so far. Then, in the light of these findings and borrowing literature from the current debate on Sovereign Wealth Funds (SWFs), several reform proposals are presented regarding how to better tackle the problems relating to these rapidly accumulated FX reserves in China. It is argued that the proposed reform options not only benefit China, but also help in addressing some wider issues (e.g. global imbalances), therefore contributing to a more harmonious global economy.

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File URL: http://ec.europa.eu/economy_finance/publications/economic_paper/2010/pdf/ecp421_en.pdf
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Bibliographic Info

Paper provided by Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission in its series European Economy - Economic Papers with number 421.

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Length: 29 pages
Date of creation: Jul 2010
Date of revision:
Handle: RePEc:euf:ecopap:0421

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Keywords: Yu-Wei Hu foreign exchange rate policy monetary policy China management of foreign exchange reserves international portfolio investment;

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  1. Bracke, Thierry & Fidora, Michael, 2008. "Global liquidity glut or global savings glut? A structural VAR approach," Working Paper Series 0911, European Central Bank.
  2. Edwin M. Truman, 2007. "Sovereign Wealth Funds: The Need for Greater Transparency and Accountability," Policy Briefs PB07-6, Peterson Institute for International Economics.
  3. Hongyi Chen & Lars Jonung & Olaf Unteroberdoerster, 2009. "Lessons for China from financial liberalization in Scandinavia," European Economy - Economic Papers 383, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  4. Roland Beck & Michael Fidora, 2008. "The impact of sovereign wealth funds on global financial markets," Occasional Paper Series 91, European Central Bank.
  5. Ming Zhang & Fan He, 2009. "China's Sovereign Wealth Fund: Weakness and Challenges," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 17(1), pages 101-116.
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