Why foreign exchange reserves can balance the balance of payments

A certain amount of foreign exchange reserves is an important means for a country to carry out economic adjustment and achieve internal and external balance. When there is a deficit in the balance of payments, the use of foreign exchange reserves can promote the balance of payments; When there is an imbalance in the domestic macroeconomy and the aggregate demand is greater than the aggregate supply, foreign exchange can be used to organize imports, so as to adjust the relationship between the aggregate supply and the aggregate demand and promote the macroeconomic balance. At the same time, when the exchange rate fluctuates, foreign exchange reserves can be used to intervene in the exchange rate to stabilize it.

Therefore, foreign exchange reserves are an indispensable means of achieving economic equilibrium and stability, especially when economic globalization continues to develop and one country's economy is more vulnerable to the economic influence of other countries.

The functions of foreign exchange reserves mainly include the following four aspects:

1. Adjust the balance of payments and ensure external payments;

Second, intervene in the foreign exchange market and stabilize the exchange rate of the local currency;

3. Maintain international credibility and improve financing capacity;

Fourth, enhance comprehensive national strength and resist financial risks.

When the tide rises, the amount of RMB and foreign exchange in various countries is like a seesaw, the RMB exchange rate is high, and the foreign exchange rate is down, and vice versa. However, due to the control of China's savings (such as the current economic overheating, inflation is intensifying), it is natural to increase the exchange rate, which leads to the rise of the savings rate (so that foreign capital will flow into China's banking market), and eventually leads to the continuous rise of foreign exchange, too much foreign exchange, which will lead to the continuous appreciation of the RMB, and the gap between the rich and the poor of the people is even larger (because for the rich, this can be ignored...). But the common people are going to die)

Foreign exchange reserves are like a big reservoir, when international income is greater than international expenditure (such as a surplus), excess foreign exchange can be put into the reservoir of foreign exchange reserves; When international expenditures are greater than international revenues (e.g., when a deficit occurs), water can be diverted from the reservoir to pay for the shortfall.

1.When the balance of payments is in surplus.

, adopt an expansionary monetary policy.

to achieve the balance of payments, as expansionary monetary policy acts as follows:

On the one hand, the domestic demand for Qiaokuanjia has expanded, the import demand has increased, and the current account surplus has decreased.

On the other hand, interest rates are lowered, capital outflows increase, internal flows decrease, capital and financial account balances decrease, and thus the balance of payments (capital and financial account + current account sensitivity) decreases.

2.In Mundell's policy collocation, he proposed to use "monetary policy" to adjust the balance of payments surplus (in fact, the deficit is also), because monetary policy has a greater impact on the external equilibrium, while fiscal policy has a greater impact on the internal equilibrium, which is the application of the optimal allocation principle.

3.The balance of payments surplus or balance of payments surplus refers to the fact that a certain country has more in and out of the balance of payments, and the balance of payments is generally settled in US dollars, which is carried out between banks, but the US dollars cannot be directly circulated in other countries except in the United States, China's central bank.

In order to maintain the balance of currency circulation, we will reserve the surplus of US dollars and issue a national currency that is about three times the reserve (as is the case in Japan). The surplus is the more foreign exchange reserves.

Naturally, the more it grows.

Of course, this is not to say foreign exchange reserves.

The more the merrier, because there is a price to be paid for holding foreign exchange reserves.

First, foreign exchange reserves are represented by the holding of financial claims denominated in a foreign currency, rather than being used in domestic production. This creates an opportunity cost.

The problem is that if the monetary authority does not hold reserves, it can use those reserve assets to import goods and services, increase the real resources of production, and thus increase employment and national income, while holding reserves gives up this benefit. Therefore, the opportunity cost of holding foreign exchange reserves should be considered.

Second, the increase in foreign exchange reserves should correspondingly expand the amount of foreign exchange reserves, and if the foreign exchange reserves are too large, inflation will increase.

pressure to increase monetary policy.

difficulty. In addition, if you hold too much foreign exchange reserves, you may also suffer losses due to the depreciation of foreign currency exchange rates. Therefore, foreign exchange reserves should be kept at a moderate level.

The appropriate level of foreign exchange reserves depends on a variety of factors, such as the status of imports and exports, the size of external debt, and the actual use of foreign capital. Foreign exchange reserves should be kept at an appropriate level in accordance with the benefits and costs of holding foreign exchange reserves, as well as the situation in these aspects.

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The reason why Europe and the United States do not have foreign exchange reserves is because the dollar is the hegemonic currency.

First, foreign exchange reserves are equivalent to holding financial claims denominated in foreign currencies to save for other countries.

Second, the increase in foreign exchange reserves requires a corresponding expansion of the amount of money. If the foreign exchange reserves are too large, it will increase the pressure of inflation and increase the difficulty of the operation of the state's monetary policy.

Third, holding too much foreign exchange reserves often faces the most advanced friction from the other party, and at the same time, it also has to bear the losses caused by the depreciation of foreign exchange.

Balance-of-payments imbalances (imbalances) are a frequent occurrence in a country and are unavoidable. This balance of payments imbalance manifests itself in a surplus or deficit. If a country has an excessive surplus or deficit in its balance of payments, it will have a significant impact on economic development.

The causes of the imbalance in the balance of payments are varied, and vary from country to country and from period to period, mainly due to the following reasons: First, it is affected by cyclical changes in the economy. The economic development of capitalist countries is cyclical, and different stages of the cycle have different impacts on the balance of payments.

Generally speaking, in a boom period, there may be a current account surplus and a corresponding increase in foreign exchange reserves due to a large increase in imports and exports due to a high level of production, while in a depression, as production declines, exports decrease, leading to a deterioration in the balance of payments. Second, it is affected by the structure of the economy. Economic structure refers to a certain proportional relationship between various production sectors in a country.

This state of economic structure is caused by factors such as the country's geographical environment, economic conditions and technological level.

The long-term imbalance in the balance of payments refers to both a long-term surplus and a long-term deficit. Whether it is a long-term deficit or a long-term surplus, it will have an adverse impact on the domestic economy. So you should misunderstand the meaning of the phrase, it should be a long-term imbalance in the balance of payments, the country's reserves are decreasing, they are a juxtaposition, not a causal relationship.