Exchange Stabilization Fund?

Foreign exchange stabilization funds are generally composed of foreign exchange, gold and domestic currency. When the foreign exchange rate continues to rise and the local currency exchange rate continues to fall during a certain period, the foreign exchange market is sold through the stabilization fund and the local currency is bought; otherwise, it is sold.

Export local currency and buy foreign exchange to stabilize the exchange rate.

Since the foreign exchange stabilization fund is not inexhaustible, when a country's international balance of payments has a fundamental or long-term imbalance and the exchange rate continues to rise or fall, the stabilization fund must be used with caution.

Jia Kang, director of the Financial Science Institute of the Ministry of Finance of China, suggested setting up a foreign exchange stabilization fund to absorb the increase in foreign exchange.

He said that if there is a foreign exchange stabilization fund, the central bank will not need to invest base currency to hedge the increase in foreign exchange, but can use other sources of funds to absorb the increase in foreign exchange through market-oriented operations.

The central bank continues to play the role of a hedging agent in this process.

Jia Kang said that there is room for operation in establishing a foreign exchange stabilization fund.

The basic content of the foreign exchange stabilization fund system is that the government allocates certain local currency and foreign currency funds to establish a foreign exchange stabilization fund account, which is controlled by the Ministry of Finance. The central bank only manages the account as the agent of the account.

Previously, Li Yang, director of the Institute of Finance of the Chinese Academy of Social Sciences, also suggested that we could consider setting up a special foreign exchange stabilization fund like the United States, the United Kingdom, and Japan. The main assets are foreign exchange assets and the liabilities are mainly special bonds and foreign exchange asset bonds.

Fully coordinate internal and external economic activities, and completely eliminate institutional obstacles that restrict and restrict each other between exchange rate and interest rate policies.

At present, China's foreign exchange reserves remain high and maintain a strong growth momentum. The central bank has to invest base currency to hedge the increase in foreign exchange. This is an important reason for the current flooding of liquidity in China causing inflationary pressure.