How to better use forex reserves

China's foreign exchange reserves reached $2.27 trillion by September 2009. That huge amount helped the nation buffer the impacts of the global recession and create a stronger voice in international affairs. Nevertheless, effective management and usage of such a large amount of capital is a major topic that needs to be deeply mined.

As the world's second largest economy, Japan accrued $1.07 trillion in foreign exchange reserves by November 2009, less than half of China's total. General consensus says that a suitable scale of foreign exchange reserves should be maintained in a volume equivalent to imports of three to four months. China's gross import volume amounted to $711.1 billion during the first nine months of 2009 - foreign exchange reserves should thus stand at approximately $320 billion.

Despite accounting for the large sum of money remitted from foreign-funded enterprises and considering the large-scale foreign direct investment (FDI) into China, as well as foreign debts and other factors, the current foreign exchange reserves are still remarkably high.