What is the role of China's foreign exchange reserves?

The role of our country's foreign exchange reserves: (1) make up for the deficit in the balance of payments and balance the balance of payments

How to Make Money in Gold Speculation Expert Free Guidance to Banks Gold and Silver TDaccount openingGuide Bank Gold and Silver Simulator Trading Software Collection Gold Number Desktop Quotation Tool In a country's foreign exchanges, the imbalance of international payments is absolute. When it occurs due to imported goods or changes in domestic political, economic and natural conditions, etc., when the balance of payments deficit occurs, it is convenient and effective to make up for it through international reserves, so as to ensure the continuity and stability of domestic economic development. Governments of various countries have always attached great importance to the issue of balance of payments. Whenever there is a deficit in the balance of payments, use international reserves to make up for the temporary balance of payments deficit, as a buffer for a country to adjust the imbalance of international payments, and then take corresponding policy measures. At the same time, it can also avoid the adverse impact on the domestic economy caused by compulsory measures such as foreign borrowing and import compression. However, any country's international reserves are limited and are generally maintained at the level of imports for three months. If there is a structural imbalance in the balance of payments, international reserves alone cannot solve the fundamental problem. For structural imbalances in the balance of payments, long-term adjustment is required, focusing on the adjustment of the structure of the entire national economy, supporting the development of sectors and enterprises with less investment, faster results, and more foreign exchange earnings. While expanding exports, we should appropriately reduce imports, so as to fundamentally improve the balance of payments situation. At the same time, we can maintain a moderate level of international reserves.

(2) Guarantee for the development of foreign trade and the strengthening of national credit

International reserves are a measure of a country's economic and financial strength and a symbol of its ability to pay externally. If a country's international reserves are sufficient, even in the case of extremely unfavorable exports, it will not affect the necessary import payment ability, thus promoting the development of foreign trade. At the same time, international reserves are a guarantee of a country's credibility. If a country has sufficient international reserves, it is easier to obtain loans, so that it can make full use of foreign trade to ensure the development of the domestic economy, and can also make up for the temporary balance of payments deficit and promote the smooth repayment of loans when they mature.

(Iii) Interventionforeign exchange marketTo stabilize the foreign exchange rate

In order to safeguard 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 level desired by the government. Under the floating exchange rate system, the international financial marekt exchange rate fluctuates frequently, which seriously affects the economic development and stability of the country concerned. Therefore, Western governments 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 reserve fund used by countries to intervene in the foreign exchange market is called the foreign exchange stabilization fund, which is usually composed of gold, foreign exchange and local currency. When the foreign exchange rate rises and the value of the national currency falls, exceeding the target range expected by the government, the government sells foreign exchange to the foreign exchange market, converts it back into the national currency, and restrains the downward trend of the national currency; when the foreign exchange rate falls and the value of the national currency rises too fast, the government sells the local currency to the foreign exchange market and receives foreign exchange in order to restrain the downward trend of the foreign exchange rate, so as to achieve the purpose of stabilizing the exchange rate.