The compulsory foreign exchange settlement and sale system means that enterprises and individuals must sell surplus foreign exchange to designated foreign exchange banks, which must sell foreign exchange higher than the positions of the State Administration of Foreign Exchange in the interbank market.
Under the compulsory foreign exchange settlement and sale system, the central bank needs to keep buying foreign exchange sold by commercial banks, which will bring about the continuous growth of foreign exchange reserves and the release of base currency. In order to prevent the continuous release of base money from bringing excess liquidity and inflationary pressure to the domestic economy, the central bank needs to continuously recover funds through open market operations, which greatly restricts the independence of the central bank's monetary policy.