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The International Financial Crisis and China's Foreign Exchange Reserve Management


  • Wang, Yongzhong
  • Freeman, Duncan


The US financial crisis and subsequent European sovereign debt crisis not only constitute serious threats to the security of China’s foreign exchange reserves, but also provide an advantageous opportunity for China to change its ideas on foreign exchange reserve management. First, according to rules of thumb, the authors assess the optimal size of China’s foreign exchange reserves in terms of short-term external debt, imports and domestic liquid assets. Second, the paper estimates the asset structure of China’s foreign reserves based on the statistics on China’s holding of US and Japanese securities. Third, the authors calculate the People’s Bank of China sterilization costs from the perspective of issuing central bank notes and raising required reserve ratios. Fourth, the paper measures the total and net investment yield of China’s foreign reserves in terms of nominal dollars, real dollars (dollar index) and nominal renminbi. Finally, the authors put forward suggestions on how to accelerate the diversification of China’s international reserves.

Suggested Citation

  • Wang, Yongzhong & Freeman, Duncan, 2013. "The International Financial Crisis and China's Foreign Exchange Reserve Management," MPRA Paper 49510, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:49510

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    References listed on IDEAS

    1. Dale, Charles & Gilroy, Curtis, 1985. "Enlistments in the All-Volunteer Force: Note," American Economic Review, American Economic Association, vol. 75(3), pages 547-551, June.
    2. Dale, Charles & Workman, Rosemarie, 1981. "Measuring patterns of price movements in the Treasury bill futures market," MPRA Paper 48639, University Library of Munich, Germany.
    3. Charles Dale & Victor B Bailey, 1982. "A Box-Jenkins Model for forecasting U.S. Merchandise Exports," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 13(1), pages 101-108, March.
    4. Jensen, Roderick V. & Urban, Robin, 1984. "Chaotic price behavior in a non-linear cobweb model," Economics Letters, Elsevier, vol. 15(3-4), pages 235-240.
    5. Nelson, Charles R & Kang, Heejoon, 1984. "Pitfalls in the Use of Time as an Explanatory Variable in Regression," Journal of Business & Economic Statistics, American Statistical Association, vol. 2(1), pages 73-82, January.
    6. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-438, July.
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    More about this item


    International financial crisis; foreign exchange reserves; management; diversification.;

    JEL classification:

    • 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
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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