The foreign exchange stabilization fund is 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 in a certain period of time, it will sell foreign exchange in the foreign exchange market and buy local currency through the stabilization fund. On the contrary, sell local currency, buy foreign exchange and stabilize the exchange rate. Because the foreign exchange stabilization fund is not inexhaustible, when a country's balance of payments is fundamentally or permanently unbalanced and the exchange rate continues to rise and fall, the use of the stabilization fund must be cautious.

Kang Jia, director of the Finance Department 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 does not need to put in the base currency to hedge the increase in foreign exchange, but can digest the increase in foreign exchange through other sources of funds and market-oriented operations.

In this process, the central bank continues to play the role of hedging subject. Konka said that the establishment of a foreign exchange stabilization fund now has its operating space. The basic content of the foreign exchange stabilization fund system is that the government allocates a certain amount of local currency and foreign currency funds to set up a foreign exchange stabilization fund account, which is in charge of the Ministry of Finance, and the central bank only manages the account as an agent.

Earlier, Li Yang, director of the Institute of Finance of China Academy of Social Sciences, suggested that, like the United States, Britain and Japan, we could consider setting up a special foreign exchange stabilization fund with foreign exchange assets as the main assets and foreign exchange assets and debts as the main liabilities, fully coordinate domestic and foreign economic activities, and completely eradicate the institutional obstacles that exchange rate policies and interest rate policies are mutually restrictive. At present, China's foreign exchange reserves remain at a high level, while maintaining a strong growth momentum. The central bank has to put in the base currency to hedge the increase in foreign exchange holdings, which is an important reason for the inflationary pressure caused by the current flood of liquidity in China.