What is the relationship between foreign exchange reserves and RMB exchange rate?
The relationship between foreign exchange reserves and RMB fluctuates inversely, that is to say, a long-term increase in foreign exchange reserves will lead to the appreciation of RMB, and a long-term decrease in foreign exchange reserves will lead to the depreciation of RMB. This is because the increase of foreign exchange reserves is equivalent to the increase of local currency purchasing power, which leads to the increase of local currency demand. According to the relationship between supply and demand, the local currency will appreciate. On the other hand, without obvious competitiveness in the international market, the currency will depreciate.
In the market, enterprises export abroad and get dollars, but the dollars in their hands can't buy raw materials, machinery or direct investment, so they have to take them to the bank and change them into RMB. Banks concentrated a large amount of foreign exchange in US dollars from enterprises, which could not be used to make money by lending, so they took it to China Foreign Exchange Trading Center and sold it. In the long run, there will be more and more foreign currencies in China Foreign Exchange Trading Center, and the foreign exchange reserves will increase accordingly, which is the origin of foreign exchange reserves.
The exchange rate of RMB is the price at which foreign currency is directly converted into RMB, and its change directly affects the increase and decrease speed of China's foreign exchange reserves. Generally speaking, the exchange rate of RMB currency is stable, and foreign investors can obtain interest and dividend income stably, which is conducive to the investment of international capital and thus promotes the growth of China's foreign exchange reserves; On the other hand, the instability of local currency exchange rate will cause capital outflow and reduce China's foreign exchange reserves.
Therefore, the relationship between foreign exchange reserves and RMB exchange rate is very close. The increase in foreign exchange reserves is equivalent to the increase in the purchasing power of local currency, so investors are more willing to hold local currency.