Under normal circumstances, only when the central bank purchases foreign exchange to form foreign exchange accounts will it become the driving force for the increase of the base currency. In recent years, China's basic currency is mainly composed of foreign exchange. So why do foreign exchange sometimes account for more than the sum of China's basic currencies? This seems contradictory. This is caused by the base currency flowing out of China from different channels. Of course, this also includes some foreign exchange holdings. The base currency formed by these foreign exchange accounts, whether it has flowed out of the country or not, has been included in foreign exchange accounts, that is, commercial banks and the People's Bank of China have been included in foreign exchange accounts in their accumulated foreign exchange settlement and sale business for many years. Namely:

Foreign exchange holdings = (foreign exchange reserves) × (exchange rate at the time of settlement)

However, the total domestic base money does not include the amount of foreign exchange flowing abroad. So there are:

The situation that foreign exchange accounts for more than the total domestic base currency. This will inevitably lead to some years:

Foreign exchange reserve issuance > Broad money balance: China M2 balance.

Therefore, we also realize that the central bank printed some base money, but the central bank did try to print more base money abroad, and basically achieved its goal. Therefore, this success is manifested in:

Foreign exchange holdings ≈ total domestic base currency (approximately equal to)

This led to the emergence of some new conclusions:

Conclusion 1:

If you use

China's M2 Balance

Note: Formula (m) can also be expressed as:

China's M2 Balance

Note: Of course, the base currency printed by the central bank includes the base currency that has flowed overseas. Therefore, the central bank may drive too much base money (printed more) abroad, and will also drive out the base money that has returned after the settlement of foreign exchange caused by a small amount of foreign exchange. (Therefore, reducing the domestic base currency directly leads to the contraction of the domestic M2 balance). However, the base currency that has gradually flowed into foreign exchange reserves in recent years (note: all, including those that have been driven out of the country) is counted in foreign exchange accounts. It also considers factors such as the sudden surge of hot money leading to a substantial increase in the base currency. Therefore, there are cases where the formula (m) appears. Specific examples can be found in the notes at the end of this article.

Conclusion 2: Foreign exchange accounts for everything in China!

From the last additional example, we can also see the contribution of foreign exchange to the balance of M2. Moreover, from the above analysis, the broad money balance generated by foreign exchange accounts is even higher than China M2 balance. Therefore, it is almost, if not all, foreign exchange holdings that lead to China's M2 balance. It was foreign exchange that boosted China's economy and created China's economic miracle, and it was foreign exchange that fueled China's inflation. It is foreign exchange that has changed everything in China. Everything, good or bad, is produced and created by it-foreign exchange!

Note: Two examples: (Examples at the end of 20 13 and 20 14)

Example 1:20 13 formula (m) at the end of the year is an example: (The following two data are from the data released by the central bank. )

At the end of 20 13, the balance of base currency was 27. 1 trillion yuan, while at the end of 20 13, the balance of foreign exchange was 26.4 trillion yuan.

At the end of 20 13, the currency multiplier is 4.08, so at the end of 20 13:

The broad money balance generated by foreign exchange accounts is: 26.4 trillion yuan X4.08= 107.7 12 trillion yuan.

At the end of 20 13, the balance of M2 was 1 10.65 trillion yuan. So at the end of 20 13:

The M2 balance of China (11000 million yuan) ≥ the broad money balance issued by foreign exchange reserves (1000 million yuan).

That is, at this time, the formula (m)

The following is formula (m), where the right end is greater than the left end.

Example 2: Take (m) 2065438+the end of March 2004 as an example:

At the end of March 20 14, China's currency multiplier was 4.22 times. 2065438+At the end of March 2004, foreign exchange accounted for 2938565438+92 million yuan. Therefore:

20 14 At the end of March, the balance of broad money (M2) in China was 1 16.07 trillion yuan.

The broad money balance generated by foreign exchange accounts is: 29.38 trillion yuan X4.22= 123.98 trillion yuan, namely:

The M2 balance of China (1 16 trillion yuan) is less than or equal to the broad money balance issued by foreign exchange reserves (124 trillion yuan).

Different from the end of 20 13, the right end of (m) is larger than the left end. But there is little difference in values.

Note: In the first quarter of 20 14, it is estimated that the devaluation of RMB led to the influx of hot money, which led to a sharp increase in foreign exchange holdings.