First, adjust the balance of payments to ensure external payment.
The second is to intervene in the foreign exchange market and stabilize the local currency exchange rate.
The third is to maintain international reputation and improve external financing ability.
The fourth is to enhance comprehensive national strength and ability to resist risks.
The main purpose of foreign exchange reserves is to pay off the balance of payments deficit, which is often used to intervene in the foreign exchange market to maintain the exchange rate of the national currency. The main forms of foreign exchange reserves are short-term government deposits abroad and other means of payment that can be cashed abroad, such as foreign securities, checks, promissory notes and foreign currency drafts of foreign banks. For a long time after World War II, the main currency of foreign exchange reserves in western countries was the US dollar, followed by the British pound. After 1970s, Deutsche Mark, Japanese Yen, Swiss Franc and French Franc joined in. In the total international reserve assets, the proportion of foreign exchange reserves is increasing. The amount of foreign exchange reserves, to a certain extent, reflects a country's ability to cope with the balance of payments, which is related to the maintenance and stability of its currency exchange rate. It is an important indicator to show a country's economic, monetary and international balance of payments strength.