1. First of all, we must understand what foreign exchange accounts for. Foreign exchange appropriation refers to the domestic currency invested by the central bank of the recipient country when purchasing foreign exchange assets. Because RMB is a non-convertible currency, foreign capital needs to be converted into RMB before it can be used in circulation. The state has to invest a lot of money to exchange foreign capital, which increases the demand for money and forms foreign exchange.

The function of foreign exchange is to increase the money supply, so it is easy to cause inflation. In particular, China's current foreign exchange reserves have reached more than $3 trillion. At the exchange rate of 6.4, nearly 20 trillion RMB has been invested in the society. At present, the total money supply in China is 75.7 trillion, so it is understandable that foreign exchange accounts for the central bank's money supply.

3. Hedging foreign exchange holdings is mainly to issue central bank bills, and raising the deposit reserve can also effectively limit the growth of money supply. Issuing treasury bonds can also play the same role, but at present, the state has a large fiscal revenue and a small deficit, so it is unnecessary and unwilling for the government to issue treasury bonds.

4. Hedging foreign exchange holdings will not directly affect the exchange rate. The central bank's means to limit the exchange rate rise is to buy foreign exchange by investing in RMB.