First of all, the legal tender in China is RMB, and foreign currency is theoretically not negotiable. Therefore, foreign trade enterprises such as China need to change their earned dollars from the central bank into RMB, so all foreign exchange goes to the central bank to form foreign exchange reserves, and enterprises get the corresponding RMB.
Second, China's domestic financial system is not perfect enough to absorb some foreign exchange, so almost all foreign exchange will eventually go to the central bank. It cannot be written off as a part of the financial system like foreign countries.
Third, before this, China did not know how to use these foreign exchange reserves, but only passively sought to preserve the value and made donations and loans with other countries. In fact, we should buy some strategic resources and cutting-edge technology in a planned way, so that foreign exchange reserves can truly form a foot to support national strength.