The base currency invested by the central bank includes foreign net assets and domestic credit, that is, base currency = foreign net assets+domestic credit. In other words, domestic credit and foreign exchange reserves constitute the main assets of the central bank.

The base currency is put into use through three channels: refinancing, financial overdraft, borrowing and foreign exchange. The first two items are collectively referred to as central bank credit, that is, domestic credit; Foreign exchange account refers to the funds invested by the central bank to purchase foreign exchange, which is the money supply caused by the change of foreign net assets. It can be seen that the base currency is a linear function of foreign exchange holdings in the same direction, that is, under the assumption that other variables are unchanged, the increase of foreign exchange holdings directly leads to the equivalent increase of the base currency. Changes in the central bank's domestic credit and foreign exchange reserves directly affect the amount of the base currency.

Simply put, domestic credit funds and foreign exchange reserves are relatively reduced in the base currency.