A country can only circulate its own functional currency (for example, Chinese mainland can only circulate RMB), and the foreign exchange obtained by enterprises' export must be sold to foreign exchange banks, from which enterprises import foreign exchange. The foreign exchange balance formed by foreign exchange banks in the process of buying and selling foreign exchange, the state (central bank) buys the remaining foreign exchange from foreign exchange banks in local currency, forming the national foreign exchange reserve.

Foreign exchange reserves are a sign that exports exceed imports. In theory, other countries need to pay the currency of the exporting country to buy goods from the exporting country. A large number of exports means a large demand for the currency of the exporting country.