Did China Effectively Manage Its Foreign Exchange Reserves? Revisiting the Currency Composition Change

Investigating the efficiency of foreign exchange reserves using stochastic frontier analysis: Evidence across the globe

“…Jie and Lei (2012) discuss the operational efficiency of foreign exchange reserves, but again it does not take into account the technical efficiency associated with it. Shi and Nie (2017) analyse the effectiveness of the management of foreign exchange reserves using the least square model and sensitivity analyses. Chen, Li, Xu, and Lei (2007) explain the optimal level of foreign exchange reserves.…”

Forecasting Foreign Exchange Reserves Using Bayesian Model Averaging-Naïve Bayes

“…The previous literature that has addressed the study of international reserves has followed three main lines of research. On the one hand, the analysis of the optimal level of international reserves that countries must maintain (Bhattacharya, Mann and Nkusu, 2019;Gevorkyan and Khemraj, 2019;Shi and Nie, 2017;Lanteri, 2013;Calvo, Izquierdo and Loo-Kung, 2012;Mwase, 2012;De Gregorio, 2011;Sula, 2011;Jeanne and Rancière, 2008;Soto, Naudon, López and Aguirre, 2004). On the other hand, those works that have studied the reasons why countries accumulate international reserves and the implications derived from this fact (Seghezza, Morelli and Pittaluga, 2017;Pina, 2015;Delatte and Fouquau, 2012;Vujanovic, 2011;Bastourre, Carrera and Ibarlucia, 2009;Aizenman and Lee, 2007;Mohanty and Turner, 2006).…”

“…They conclude a formula for the optimal level of reserves, and exhibit that credible calibrations can explain reserves of the order of magnitude observed in many emerging market countries. Likewise, Calvo, Izquierdo and Loo-Kung (2012) explored the optimal stock of international reserves through a statistical model in which reserves reduce the probability of a sudden stop and its consequent costs On the other hand, and regarding the determination of the optimal composition of foreign exchange reserves, Shi and Nie (2017) valued the latent currency composition of China´s foreing exchange reserves and reported that this country has started to pay more attention to the emerging international currency. Recently, the study of Gevorkyan and Khemraj (2019) analyzed the composition of international reserves under a central bank´s exchange rate policy target and concluded that a central bank could demand a percentage of gold in international reserves, especially when the country prefers to increase international reserves for precautionary reasons.…”