Foreign currency cannot be circulated in China, but can only be converted into RMB. The entry of foreign currency means that banks need to issue RMB equivalent to the corresponding foreign currency, so RMB will increase. Suppose that the foreign exchange reserves increased by 40 billion in June this year from 5438+ 10, which means that the RMB in China increased by 210 billion. This means that the liquidity has increased by 210 billion. This is the relationship between foreign exchange reserves and domestic money supply.

Extended data

Main applications

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 and maintain the exchange rate of the domestic currency.

Main form

There are short-term government deposits 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 1970, German mark, Japanese yen, Swiss franc and French franc were added.

Statutory reserve ratio

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.

Baidu encyclopedia-foreign exchange reserve