Concept:
Foreign exchange reserve, also known as foreign exchange reserve, refers to the foreign exchange part of the international reserve assets held by a country's government, that is, assets held by a country's monetary authorities that can be converted into foreign currency at any time. Foreign exchange reserves are mainly used to pay balance of payments debts and creditor's rights arising from international trade.
Reasons for formation:
In international economic transactions and international payments, legal tender issued by each country can only be circulated and used within its own management scope.
Therefore, a country's balance of payments debt and creditor's rights arising from international trade with other countries must be converted from its own currency into foreign currency, which is called foreign exchange as a means of payment for international settlement.
In order to promote international trade, every country will reserve other national currencies except its legal tender. This part of foreign exchange is called the country's foreign exchange reserve, which is produced in such international trade demand.
Influencing factors:
1, international trade and balance of payments
International trade surplus (export is greater than import) can increase foreign exchange reserves, while deficit will reduce reserves. A country's balance of payments has an important influence on the change of reserves.
2. National exchange rate policy
A country's exchange rate policy will directly affect the demand for foreign exchange reserves. By intervening in the foreign exchange market to buy or sell domestic currency, the central bank can influence the scale of foreign exchange reserves.
Expansionary monetary policy will increase the circulation of base currency in a short period of time, which will make the exchange rate of domestic currency decline, the devaluation of currency will lead to the increase of domestic export advantage, and the inflow of capital will lead to the increase of foreign exchange reserves; On the contrary, tight monetary policy will lead to a decrease in foreign exchange reserves.
3. International capital flows
Foreign direct investment and short-term speculative capital flows have an impact on changes in foreign exchange reserves. Foreign investment takes the international reserve currency as the trading medium. Large-scale foreign capital inflow will attract a large number of international reserve currencies and increase a country's foreign exchange reserves, while capital outflow may reduce reserves.
4. Fluctuations in international financial markets.
Fluctuations in the international financial market, including exchange rate fluctuations and interest rate changes, will affect the value of foreign exchange reserves. Changes in the value of foreign exchange reserves will reflect changes in the market. External factors such as the international financial crisis and geopolitical risks will lead to capital outflows and exchange rate fluctuations, thus affecting the changes in foreign exchange reserves.