The scale of foreign exchange reserves shows an obvious fact: these countries refuse to implement the free floating exchange rate system suggested by many foreign economists. Instead, they chose to hold down the exchange rate. This in turn led to a current account surplus. Maintaining this surplus requires that domestic savings continue to be higher than domestic investment. The means adopted by these countries is to "sterilise" the impact of the accumulation of foreign exchange reserves on their own money supply, so as to prevent the normal expansion of money and credit, overheating of the economy, inflation and loss of external competitiveness. "

In order to ensure the stability of the exchange rate (refusing to use the free floating system), when the foreign exchange accumulation increases, it is usually necessary to intervene in the exchange rate of a country's currency in the foreign exchange market (the intervention of the central bank in the foreign exchange market, such as selling local currency to buy dollars), which will inevitably have an impact on the country's base currency and total money supply (that is, it will increase the RMB in circulation).

At this time, the central bank will take some write-off measures, such as issuing central bank bills, increasing the reserve ratio and bank loan quotas, to partially or completely offset the impact of foreign exchange market intervention on the domestic money supply (the purpose of these actions is to absorb too much RMB in the domestic market), that is, the impact of foreign exchange accumulation on the domestic money supply.

I hope it helps you.