What is foreign exchange for?

Foreign exchange is an important part of a country's international reserves, and it is also the main means of payment to pay off international debts, promote the development of international economy and trade, and adjust the surplus and deficiency of international funds.

The flow of money between countries is a specialized commercial activity, which converts one country's currency into another country's currency to pay off international creditor's rights and debts. In fact, it is the creditor's rights held by the monetary management authorities (central bank, monetary management institutions, foreign exchange stabilization fund and Ministry of Finance) in the form of bank deposits, treasury bonds, long-term and short-term treasury bonds, etc. Can be used when the balance of payments is in deficit.

Extended data

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

1. Freely convertible foreign exchange refers to the foreign exchange that is most used in international settlement, can be bought and sold freely 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 currencies of other countries. Such as US dollars, Hong Kong dollars and Canadian dollars.

2. Limited convertible foreign exchange refers to foreign exchange that cannot be freely converted into other currencies or paid to third countries 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.

3. 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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