What is foreign exchange and what is it used for?

Foreign exchange refers to the flow of money between countries, which converts one country's currency into another country's currency to pay off international creditor's rights and debts. It is the abbreviation of foreign exchange.

To sum up, foreign exchange is actually a creditor's right held by monetary management organs (central bank, monetary management institutions, foreign exchange stabilization fund, Ministry of Finance) in the form of bank deposits, treasury bonds, long-term and short-term treasury bonds, etc. , which can be used when the balance of payments is in deficit, including bonds that are not circulated in the market due to the agreement between the central bank and the government, whether expressed in the currency of debtor countries or creditor countries.

Extended data:

General classification of foreign exchange:

1. It is divided into freely convertible foreign exchange, limited freely convertible foreign exchange and bookkeeping foreign exchange according to the degree of restriction.

2. Freely convertible foreign exchange refers to the foreign exchange that is most used in international settlement, can be freely traded in the international financial market, can be used to pay off creditor's rights and debts in international finance, and can be freely converted into other countries' currencies. Such as US dollars, Hong Kong dollars and Canadian dollars.

3. Limited convertible foreign exchange refers to foreign exchange that cannot be freely converted into other currencies or paid to a third country without the approval of the issuing country. According to the regulations of the International Monetary Fund, all currencies with certain restrictions on international current payments and capital transfer are restricted freely convertible currencies. More than half of the national currencies in the world are limited convertible currencies, including RMB.

4. Bookkeeping foreign exchange, also known as clearing foreign exchange or bilateral foreign exchange, refers to foreign exchange deposited in bank accounts designated by both parties and cannot be converted into other currencies or paid to third countries.

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