Foreign exchange reserves are the creditor's rights held by a government 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 reserve is an important part of a country's economic strength, and it is a foreign exchange accumulation used by a country to balance international payments, stabilize exchange rates and repay foreign debts. Broadly speaking, foreign exchange reserves refer to assets denominated in foreign exchange, including cash, foreign bank deposits 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 inflow of foreign exchange reserves of a certain scale represents the outflow of physical resources of a corresponding scale. Under the current foreign exchange management system, the central bank has unlimited responsibility for the repurchase of foreign exchange funds. Therefore, with the growth of foreign exchange reserves, foreign exchange holdings are also increasing. The rapid growth of foreign exchange not only restricts the effectiveness of macro-control since 2004, but also weakens the effect of macro-control structurally, further increasing the pressure of RMB appreciation, making the central bank's space for regulating monetary policy smaller and smaller. Evaporating the savings of domestic currency, a large amount of inflation itself is the performance of the central bank diluting the purchasing power of domestic currency, but when diluting the purchasing power, the central bank did not subsidize the holders and other new currencies, thus evaporating the wealth of the people.

However, the appreciation of RMB will not directly lead to the loss of foreign exchange reserves. Foreign exchange reserves are foreign exchange assets, with the US dollar as the bookkeeping base currency. Changes in the exchange rate of RMB against the US dollar lead to changes in the book value of foreign exchange reserves converted into RMB, which is not the actual profit and loss, nor directly affects the actual purchasing power of foreign exchange reserves, but the book difference caused by using RMB or US dollar as the bookkeeping base currency.