What is the role of foreign exchange reserves and what is the role of foreign exchange reserves

To put it mildly, from personal travel abroad to enterprise development and procurement. Whether it is to buy a bag or an airplane or a ship, it is convenient to exchange it for US dollars first, and what is consumed is foreign exchange reserves. In general, it can maintain the stability of the RMB exchange rate and guard against financial risks.

In a country's foreign exchanges, the imbalance in the balance of payments is absolute. When there is a deficit in the balance of payments due to changes in imported commodities or domestic political, economic and natural conditions, it is a convenient and effective way to make up for it through international reserves, so as to ensure the continuity and stability of domestic economic development. Whenever there is a deficit in the balance of payments, the use of international reserves to make up for the temporary deficit in the balance of payments, as a buffer for a country to adjust the imbalance in the balance of payments, and then take corresponding policy measures.

At the same time, it is also possible to avoid the adverse impact on the domestic economy caused by the adoption of compulsory measures such as external borrowing and reducing imports. However, any country's international reserves are limited and generally remain at a level of imports maintained for three months. If there is a structural imbalance in the balance of payments, international reserves alone will not solve the fundamental problem.

With regard to the structural imbalance in the balance of payments, it is necessary to carry out long-term adjustments, focus on the restructuring of the entire national economy, support the development of sectors and enterprises with less investment, quick results, and more foreign exchange earnings, and appropriately reduce imports while expanding exports, so as to fundamentally improve the balance of payments situation, and at the same time, maintain a moderate level of international reserves.

2) Guarantee for the development of external development and the enhancement of national credit.

International reserves are a measure of a country's economic and financial strength, and a symbol of the strength of its external payment capacity. If a country's international reserves are sufficient, even in the case of extremely unfavorable exports, it will not affect the necessary import payment capacity, thus promoting the development of foreign countries. At the same time, international reserves are a guarantee of a country's credibility.

If a country has abundant international reserves, it will be easier to obtain loans, so that it can make full use of foreign trade to ensure the development of its domestic economy, and it can also make up for the temporary deficit in the balance of payments and promote the smooth repayment of loans when they are due.

3) Intervene in the foreign exchange market and stabilize the foreign exchange rate.

In order to maintain the credibility of the national currency and the economic interests of the country, the monetary authority of a country must use international reserves to intervene in the foreign exchange market to stabilize the value of the national currency at the desired level. Under the floating exchange rate system, the exchange rate of the international financial market fluctuates frequently, which seriously affects the economic development and stability of the countries concerned. Therefore, Western countries often intervene in the foreign exchange market by using international reserves to achieve the purpose of stabilizing the exchange rate of their own currencies.

The reserves** used by countries to intervene in the foreign exchange market**, known as the foreign exchange leveling**, are usually made up of**, foreign exchange and local currency. When the foreign exchange rate rises and the value of the national currency exceeds the desired target range, it will sell foreign exchange to the foreign exchange market and exchange it back to the national currency to curb the downward trend of the national currency value; When the foreign exchange rate** and the value of the national currency rise too fast, ** will sell the local currency to the foreign exchange market and collect foreign exchange, so as to curb the trend of the foreign exchange rate**, so as to achieve the purpose of stabilizing the exchange rate.

Foreign exchange reserves, also known as foreign exchange reserves, refer to the foreign exchange assets held by ** banks and other ** institutions in various countries in order to meet the needs of international payments.

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Foreign exchange reserves serve the following purposes:

1. Foreign exchange reserves are an important indicator of a country's comprehensive national strength, which is conducive to maintaining the credibility of the country and enterprises in the world.

2. Foreign exchange reserves can achieve economic equilibrium and stability, and when the exchange rate fluctuates, sufficient foreign exchange reserves can effectively intervene in the foreign exchange market, support the local currency exchange rate, and stabilize the exchange rate.

3. Foreign exchange reserves can help the country to adjust the economy and achieve internal and external balance, and when there is a deficit in the balance of payments, the use of foreign exchange reserves can promote the balance of payments.

4. Foreign exchange reserves can adjust the relationship between aggregate supply and aggregate demand, promote macroeconomic balance, when the domestic macroeconomic imbalance, aggregate demand is greater than aggregate supply, you can use foreign exchange reserves to organize imports.

5. Foreign exchange reserves are conducive to maintaining the international reputation of the country and enterprises, and can also achieve economic balance and stability, and can also help the country to carry out economic adjustment, achieve internal and external balance, and adjust the relationship between aggregate supply and aggregate demand, and promote macroeconomic balance.

Further information: 1. Foreign exchange reserves, also known as foreign exchange reserves, are assets held by the monetary authority of a country or economy and can be exchanged for the currencies of other countries at any time, usually in US dollars. In a narrow sense, foreign exchange reserves refer to a country's foreign exchange accumulation; Broadly speaking, it refers to the total assets denominated in foreign exchange, including cash, **, foreign value**, etc.

Foreign exchange reserves are an important part of a country's international solvency, and at the same time, they have an important impact on balancing the balance of payments and stabilizing the exchange rate. However, foreign exchange reserves are often not net assets and cannot be considered as national wealth that can be directly shared by the people.

2. The balance of foreign exchange reserves (foreign exchange reserves) is often mistaken as an important indicator of economic strength, but countries that issue strong currencies, such as the United States, do not need too many foreign exchange reserves, because their currencies can be circulated in the international foreign exchange market; On the contrary, some developing countries whose currencies are not in international circulation need to hold large foreign exchange reserves to cope with fluctuations in the international market and political situation due to economic development considerations or political needs. In addition, the amount of foreign exchange reserves of a country or economy is also affected by its monetary policy.

In order to be able to reserve foreign exchange, foreign exchange reserves refer to foreign assets that are centrally controlled by central banks and other departments of various countries around the world and can be converted into monetary units at any time in order to meet the demand for cross-border payments. The actual means are: short-term bonds of the state at home and abroad or other payment methods that can be redeemed overseas, such as foreign commercial papers, bank drafts, checks, foreign exchange bills, etc.

1. Adjust the balance of payments and ensure the professional ability to pay foreign exchange.

For example, when the RMB depreciates, it is necessary to sell the Chinese RMB and store US dollars; When the renminbi appreciates, it is necessary to sell the dollar, according to the policy intervention, and stabilize the renminbi.

2. Protect the credibility of RMB internationalization and continuously improve the professional ability of external financing.

According to Article 2, after stabilizing the rate of the host country, the credibility of the Chinese RMB in the international community will also be improved, and the ability to provide external financing can be guaranteed.

3. Continuously improve China's national strength and financing capacity.

Storing a certain degree of foreign exchange reserves plays a vital role in the development trend of a country's import and export, which can enhance China's national strength.

How are international reserves different from U.S. Treasury bonds.

The key role of international reserves is to balance the balance of payments, which is manifested in various forms, including short-term bonds of the country at home and abroad, and payment methods that can be redeemed overseas, such as foreign commercial papers, bank drafts, checks, foreign exchange bills, etc.

U.S. Treasury bonds are relative to the U.S. dollar, it is a master-slave relationship with U.S. Treasury bonds, U.S. Treasury bonds are a scattered species of U.S. foreign exchange reserves, usually foreign exchange reserves to understand the safety factor, liquidity, and it is best to have a little income, and U.S. Treasury bonds are just in line, owning U.S. Treasury bonds is fundamentally still owning U.S. dollars. The basic foreign exchange appropriation method has become an important way for the central bank to occupy foreign exchange. Because foreign exchange reserves are increasing year by year, in order to maintain the stability of the foreign exchange market, the central bank must buy foreign exchange transactions in the foreign exchange market and sell out its own currency.

Depending on the effect of the pure goods or the coin multiplier effect, the money supply is enlarged, which at the same time leads to inflationary pressures.

Now, no matter what industry or enterprise, during the establishment and operation period, it will set aside a reserve fund for itself in case of emergency. Our country will also hold a foreign exchange reserve in its hands at any time, so what is the role of foreign exchange reserves?

1. Intervention in the foreign exchange market and stabilization of the local currency exchange rate: In the foreign exchange market, a stable exchange rate is conducive to the economic development of the country, and in order to maintain stability, the state can intervene in the foreign exchange market through the foreign exchange reserves held in its hands.

2. Adjust the balance of payments and ensure external payment: In China, a compulsory foreign exchange settlement system has been adopted, and the foreign exchange of import and export of enterprises must be subject to the management and constraints of the State Administration of Foreign Exchange. In the international **, the US dollar is the most important foreign exchange reserve of various countries, and it is also the main trading tool, so a country must ensure sufficient US dollar foreign exchange reserves in order to ensure external payments.

3. Maintain international credibility and improve external financing capacity: A country's strong economic strength determines whether the country has sufficient solvency, and the most direct indicator of solvency is foreign exchange reserves.

4. Enhance comprehensive national strength and the ability to resist risks: foreign exchange reserves represent a country's assets, in recent years, China's foreign exchange reserves have grown rapidly, in 1997 during the serious financial crisis in Asia, various countries have announced the depreciation of their national currencies, and the reason why China promises that the RMB will not depreciate is based on strong foreign exchange reserves.

Therefore, foreign exchange reserves are an important means for a country to carry out economic adjustment and achieve internal and external balance.

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.

What do foreign exchange reserves do?

1.Credit currency.

With the gradual expansion of human social activities in depth and breadth, the frequency and scale of transactions have developed unprecedentedly. Money as a medium of exchange is also gradually becoming less real and less – the purpose of which is to dramatically reduce the cost of circulating the money itself. Finally, evolved a purely credit currency.

Credit money relies on two prerequisites:1There is a finale of public violence, 2

Occupy the circulation channel for daily transactions.

These two prerequisites determine the effective range of credit money issued on the basis of national credit. When the controllable scope of public violence shrinks, the value of this credit currency shrinks dramatically; When this credit currency gradually withdraws from the circulation channels of daily transactions, the value of this credit currency will also weaken. Even though Alipay and WeChat Pay cannot issue currency, they occupy the circulation channel for daily transactions.

So, it must be subject to official surveillance!

2.International Transactions.

Human needs are diverse, but one region is rich in some resources but others are relatively scarce. According to the usual trajectory, their livelihoods revolve around the kind of resources that are particularly abundant in their own area. The so-called relying on the mountains to eat the mountains and relying on the water to draft the water is to make full use of the surplus resources in the living environment to maintain the survival of the entire group.

Trading is not just about making value judgments about things that you have determined for what you have not determined.

3.Land financing.

There is a cost to do everything.

The U.S. dollar is an international currency, and if you want to buy something in a foreign country, you must first convert your money into U.S. dollars at the exchange rate, and then use U.S. dollars to buy directly from others. After the purchase is completed, the person goes to the bank and then transfers, and he pays his salary in his own currency and leaves a part of the foreign exchange to buy other things in foreign countries. Of course, if you have the currency of the country where you buy goods, you don't need to go in between.