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


  • Yu-Wei Hu


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.

Suggested Citation

  • Yu-Wei Hu, 2010. "Management of China's foreign exchange reserves: a case study on the state administration of foreign," European Economy - Economic Papers 2008 - 2015 421, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  • Handle: RePEc:euf:ecopap:0421

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    References listed on IDEAS

    1. Hongyi Chen & Lars Jonung & Olaf Unteroberdoerster, 2014. "Lessons for China from Financial Liberalization in Scandinavia," Asian Economic Papers, MIT Press, vol. 13(1), pages 1-44, Winter.
    2. 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.
    3. Roland Beck & Michael Fidora, 2008. "The impact of sovereign wealth funds on global financial markets," Intereconomics: Review of European Economic Policy, Springer;German National Library of Economics;Centre for European Policy Studies (CEPS), vol. 43(6), pages 349-358, November.
    4. Edwin M. Truman, 2007. "Sovereign Wealth Funds: The Need for Greater Transparency and Accountability," Policy Briefs PB07-6, Peterson Institute for International Economics.
    5. Fidora, Michael & Bracke, Thierry, 2008. "Global liquidity glut or global savings glut? A structural VAR approach," Working Paper Series 911, European Central Bank.
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    Cited by:

    1. Li Zhang, 2016. "‘Reflexive Expectations’ in EU–China Relations: A Media Analysis Approach," Journal of Common Market Studies, Wiley Blackwell, vol. 54(2), pages 463-479, March.
    2. Lai Suet-Yi & Zhang Li, 2013. "Challenging the EU’s Economic Roles? The Impact of the Eurozone Crisis on EU Images in China," Baltic Journal of European Studies, De Gruyter Open, vol. 3(3), pages 13-36, December.

    More about this item


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

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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