Banks have concentrated a large amount of foreign exchange in US dollars from enterprises, which can't be used to make money by lending, so they take it to China Foreign Exchange Trading Center for sale. Buy dollars at the foreign exchange center and sell them to the bank in RMB. This dollar price is the exchange rate of RMB against the US dollar.
The central bank bought a lot of dollars in foreign exchange trading centers, forming foreign exchange reserves. The price of foreign exchange trading center, that is, the exchange rate of RMB against the US dollar, is influenced by many factors, such as loose monetary policy in the United States and currency depreciation; For example, China's economy is strong, and a large number of dollars come in for investment. The impact is nothing more than two aspects. The rise and fall of the RMB exchange rate corresponds to the rise and fall of the US dollar.
When the RMB exchange rate rises, that is, the RMB appreciates and the US dollar depreciates, China's export commodities will become more expensive (priced in US dollars) in the international market, foreigners will spend more US dollars to buy, and fewer people will buy China's commodities, so exports will also decrease, and the corresponding enterprises will get less US dollars, so that the central bank can potentially buy less foreign exchange and the foreign exchange reserves will decline.
When the RMB exchange rate falls, that is, the RMB depreciates and the US dollar appreciates, everything is just the opposite. China's exports are cheaper, the dollar in the foreign exchange market will increase, and the foreign exchange reserves will also increase.