Foreign exchange reserve, also known as foreign exchange reserve, refers to the foreign exchange part of the international reserve assets held by a country, that is, the creditor's rights held by a country in foreign currency. It is an asset held by the national monetary authority and can be converted into foreign currency at any time. In a narrow sense, foreign exchange reserves refer to a country's foreign exchange accumulation; Broadly speaking, foreign exchange reserves refer to assets denominated in foreign exchange, including cash, gold and foreign securities. Foreign exchange reserve is an important part of a country's international liquidity, which has an important influence on balancing international payments and stabilizing exchange rate.

The specific forms of foreign exchange reserves include: short-term deposits abroad or other means of payment that can be cashed overseas, such as foreign securities, checks, promissory notes, foreign currency drafts of foreign banks, etc. It is mainly used to pay off the balance of payments deficit, intervene in the foreign exchange market and maintain the local currency exchange rate.

Development of foreign exchange reserves

In order to meet the needs of international payment, foreign exchange held by central banks and other institutions is foreign exchange reserves. Together with gold reserves, special drawing rights and readily available funds in the International Monetary Fund, it constitutes the sum of a country's official reserves (reserve assets). 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 to maintain the exchange rate of the national currency. The main forms of foreign exchange reserves are short-term deposits abroad 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 1970s, Deutsche Mark, Japanese Yen, Swiss Franc and French Franc joined in. 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.

Functions of foreign exchange reserves

The functions of foreign exchange reserves mainly include the following four aspects:

First, adjust the balance of payments to ensure external payment.

The second is to intervene in the foreign exchange market and stabilize the local currency exchange rate.

The third is to maintain international reputation and improve external financing ability.

The fourth is to enhance comprehensive national strength and ability to resist risks.

A certain foreign exchange reserve is an important means for a country to adjust its economy and achieve internal and external balance. When the balance of payments is in deficit, the use of foreign exchange reserves can promote the balance of payments; When the domestic macro-economy is unbalanced and the total demand exceeds the total supply, foreign exchange can be used to organize imports, thus adjusting the relationship between total supply and total demand and promoting macroeconomic balance. At the same time, when the exchange rate fluctuates, foreign exchange reserves can be used to intervene in the exchange rate to stabilize the exchange rate. Therefore, foreign exchange reserves are an indispensable means to achieve economic balance and stability, especially when economic globalization is developing and one country's economy is more susceptible to the influence of other countries' economies.

Generally speaking, increasing foreign exchange reserves can not only enhance macro-control ability, but also help to maintain the international reputation of countries and enterprises, expand international trade, attract foreign investment, reduce the financing cost of domestic enterprises, and prevent and resolve international financial risks. The appropriate level of foreign exchange reserves depends on many factors, such as import and export, the scale of foreign debt, and the actual utilization of foreign capital. Foreign exchange reserves should be kept at a moderate level according to the comparison of income and cost and these conditions.

Some countries with strong currencies, such as the United States, do not have much foreign exchange reserves, because the dollar can circulate in various countries. The currencies of developing countries are not easy to circulate in the world, and these countries usually have to have a large amount of foreign exchange reserves to deal with them because of political reality or their own economic development. For example, Taiwan Province Province (Republic of China) often ranked first in the world in the 1990s.

Liquidity seeking short-term returns is called hot money, also known as liquidity. Foreign exchange with the nature of "hot money" can be withdrawn in a short time, that is, "a large amount of foreign capital flows out".

China's foreign exchange reserves have been increasing from $268.4 billion in 2002. By the end of June, 2008, China's foreign exchange reserves totaled nearly US$ 2 trillion, a record high, with an annual growth rate of 32.9%. At least half of them are so-called "hot money". Xie Guozhong, former chief economist of Morgan Stanley Asia Pacific, said: "In fact, this is not China's money, but the result of capital inflow." 67% of China's foreign exchange reserves are used to buy US Treasury bonds and relevant US institutional bonds. , reference: business times/articles/20090521/exchange052176,