Bond is a kind of financial contract, which is a creditor's right and debt certificate issued to investors when the government, financial institutions and industrial and commercial enterprises directly borrow money from the society and promise to pay interest at a certain interest rate and repay the principal according to the agreed conditions. The essence of a bond is a certificate of debt, which has legal effect. There is a creditor-debtor relationship between bond buyers or investors and issuers. Bond issuers are debtors and investors (bond buyers) are creditors.
Bond is a valuable security. Because the interest of bonds is usually determined in advance, bonds are a kind of fixed-interest securities. In countries and regions with developed financial markets, bonds can be listed and circulated. In China, the typical government bonds are short-term treasury bills.
Foreign exchange reserves, also known as foreign exchange reserves, refer to foreign exchange assets held by central banks and other government agencies to meet the needs of international payment.
The specific forms of foreign exchange reserves include: short-term government deposits abroad or other means of payment that can be cashed abroad, such as foreign securities, checks, promissory notes, foreign currency drafts of foreign banks, etc. It is mainly used to pay off the balance of payments deficit, intervene in the foreign exchange market and maintain the exchange rate of the domestic currency.
The role of foreign exchange reserves
1. Adjust the balance of payments to ensure external payment.
When there is an obvious gap in the country's import and export transactions or the trade gap caused by other factors, foreign exchange reserves can be used to fill the deficit, maintain the country's reputation in international transactions, avoid more economic crises and ensure the normal development of the economy.
2. Intervene in the foreign exchange market and stabilize the local currency exchange rate.
A country's exchange rate is determined by its supply and demand. If the country's supply and demand relationship appears disorderly imagination, which leads to the abnormal development of market exchange rate, it will have an impact on the country's monetary policy operation. At this time, the government will use its foreign exchange reserves to buy foreign bonds to regulate the market and stabilize the exchange rate.
3. Maintain international reputation and improve external financing capacity.
The amount of foreign exchange reserves represents a country's ability to repay foreign debts, and also reflects the country's economic strength, which can be used to judge the country's credit status. At the same time, it also helps us gain more international competitive advantages.
4. Enhance comprehensive national strength and ability to resist risks.
Foreign exchange reserves are also the assets of the Bank of China. More foreign exchange reserves means that the assets of the central bank are higher, and there will be more financial support in our international economic affairs. If there is a financial crisis, more foreign exchange reserves can mean you have more ability to resist risks.