It is officially defined as the assets held by government agencies in order to meet the demands of international payments.
Simply understand, if we want to trade with other countries, but our holding is not recognized by other countries, we need to use the money stored in the long term for overseas transactions is the foreign exchange reserve.
Generally, there are two kinds of sources: one is engaged in export enterprises and workers.
When they sell their goods overseas, they usually settle in foreign currency, but it is difficult for ordinary people to spend money in China with foreign currency, so they will exchange it into RMB at the bank, and this part of foreign currency will become foreign exchange reserves.
The other is outside investors.
In order to make relevant investment activities in our country, foreign investors also need to change into RMB, and the exchange of foreign currency naturally flows into the foreign exchange reserves.
Foreign exchange reserves contain various foreign currencies, such as the US dollar, and so on, which will change with different market factors. If the foreign exchange reserves are too large, there will be more types, and different exchange rate risks will easily lead to the depreciation of the assets held.
