2. The depreciation of the local currency is conducive to increasing foreign exchange reserves, which is conditional. Generally speaking, the depreciation of the local currency often corresponds to a large amount of capital flight. At this time, foreign exchange reserves generally declined. Of course, with the decline of exchange rate, it will stimulate the growth of domestic exports, the decline of imports and the expansion of trade surplus. Thus gradually changing the direction of capital flow, from net outflow to net inflow. Foreign exchange reserves can often increase when funds turn into net inflows.
Historically, the RMB exchange rate is generally positively related to China's foreign exchange reserves. However, this round of exchange rate depreciation is different from the historical situation:
1) First of all, this round of exchange rate depreciation is not the same as the sharp increase in residents' demand for foreign exchange purchase during the exchange reform in August 1 1. As an asset price, exchange rate will be affected by non-trading factors, including expectations, and is not entirely determined by the settlement and sale of foreign exchange. In some cases, price changes will have feedback on supply and demand. After the exchange rate reform in August 1 1, the market's tolerance for RMB fluctuations has been greatly improved, and the current depreciation rate is not enough to cause panic purchase of foreign exchange.
3) Secondly, the purchase of foreign exchange by domestic residents does not necessarily bring about capital outflow. Theoretically speaking, the purchase of foreign exchange by domestic residents from domestic banks is only equivalent to the change of the currency structure of bank liabilities, and does not necessarily bring about the change of bank asset structure. Judging from the net purchase of land stock connect, overseas capital did not accelerate its withdrawal from the domestic stock market because of the depreciation of RMB.
3) Banks cannot actively purchase foreign exchange from the central bank. In fact, banks can only exchange foreign exchange positions with other financial institutions in the interbank market, and there is no channel for active trading with the central bank. Even if the expectation of depreciation is greatly fermented, if the central bank does not operate in the foreign exchange market, it will not affect foreign exchange reserves. The data of foreign exchange reserves in July also confirmed that the central bank did not interfere too much in the spot market at least in this round of RMB depreciation.