Zheng Feilong himself has been rising step by step in the past few years at the State Administration of Foreign Exchange, and has also carefully studied theories on free exchange of RMB behind Yang Xing's bar. Therefore, even if he explains the issue of foreign exchange reserves in front of many economists, he still has a good reputation. He just heard many people point out that there are so many foreign exchange reserves now, and many areas in China have not yet escaped poverty, so why can't they feed back to China? He thinks that some of these economists are confused, with different quality.

Therefore, he clarified a concept from the beginning, that is, first of all, foreign exchange reserves are not, as people usually think, the surplus of the Ministry of Finance, but the liability of the central bank. This is because the RMB in my country is not an international currency and cannot be converted freely. Foreign exchange reserves are "buyed" back from enterprises and individuals at the exchange rate at the time by issuing RMB. According to the law, at any time when enterprises and individuals are willing to exchange foreign exchange rates at the time for commercial activities, the central bank must exchange these foreign exchange for them at any time.

However, on the central bank's balance sheet, the form of foreign exchange reserves is "assets", which means that how much foreign exchange is used should be reflected in the international market as the central bank has the same purchasing power as the issuance of RMB. In this way, foreign exchange reserves are the assets of the central bank and the liabilities of the central bank on the Internet. They cannot be directly invested into the domestic economic operation system as a certain fiscal revenue through government expenditures like the 4 trillion investment plan.

In addition to institutional constraints, if foreign exchange reserves are directly invested in the domestic market, it also involves a more important issue. According to regulations, the central bank's foreign exchange reserves are not completely impossible to invest in the domestic market, so it must be converted into RMB. For example, the central bank gives local governments $20 million, but the US dollar is not a circulating currency in China. If local governments want to spend it, they must also let the central bank exchange the US dollar for 160 million yuan (assuming the 1:8 exchange rate). Therefore, the local governments finally get 160 million yuan, not 20 million US dollars.

But the central bank found that the 20 million US dollars was back in its hands, but for the 20 million US dollars, the central bank had to spend 160 million more yuan to the local government (if there is a shortage, it will print a new one). Therefore, issuing foreign exchange to local governments is equivalent to issuing equivalent RMB or printing new RMB to them. This is the fundamental reason why foreign exchange reserves cannot be used to support my country's poor areas or support national construction. Using foreign exchange reserve funds to solve domestic problems is like using RMB to solve problems, either using cash or printing new RMB, and it also makes a big mistake. Why not print RMB directly? Similarly, direct foreign exchange issuance of any domestic enterprise or individual will also cause this consequence.

The central bank's foreign exchange reserves are then converted into RMB and entered the economic operation. The economic term is called secondary exchange, which is equivalent to a double price of 1 US dollar, that is, 16 yuan. This will bring very serious results, which means that the exchange rate of the RMB against the US dollar suddenly depreciates by twice. It will be like during the Asian financial crisis in 1997, when many Asian countries sold out foreign exchange reserves, causing a sharp depreciation of their local currencies, causing a currency crisis. Severe inflation will not only interrupt economic growth, but also cause serious social turmoil.

Someone just suggested that my country's economic growth model is considered to have major flaws. Internationally, it is generally believed that economic growth requires investment, and exports and consumption are the three pillars. China mainly relies on investment and exports to drive domestic consumption. The proportion of domestic consumption is seriously lower than the international level, and even competitors like India are not as good as it. If it is to give part of the trillion-dollar foreign exchange reserves to the people, stimulate domestic consumption and drive economic growth, wouldn't it be better?

But this still doesn't work. If the people exchange the US dollar for RMB to consume domestically, the 1 trillion US dollar will return to the central bank, and the exchange rate will still be a second time, and the additional RMB equivalent to 1 trillion US dollars will be issued. If the people do not have to be at home, they will still be unable to consume abroad with this foreign exchange. First of all, this loses its original intention and does not achieve the effect of stimulating the domestic economy. What's worse is that the foreign exchange reserves are still 1 trillion US dollars less, and the central bank has issued 2 trillion US dollars equivalent, which will also trigger a currency crisis, and the RMB will continue to depreciate and inflation.

Moreover, since it can be exchanged twice, it can be exchanged three times and four times. This repeated foreign exchange exchange behavior is actually no different from the central bank's direct printing of money. Each exchange is equivalent to the central bank issuing an equal amount of currency calculated at the exchange rate at that time. If the economic situation really deteriorates to the point where it is necessary to use the foreign exchange exchange trick, and directly adopt the method mentioned by the Federal Reserve Chairman of the China Financial Tsunami, take a helicopter and fly all over the United States, and sprinkle money out.

Therefore, the foreign exchange management laws issued by the government stipulate that the purchasing power of foreign exchange reserves can only be used abroad. Since it is not feasible to directly issue foreign exchange to Chinese people, some people say that the government can use all of these foreign exchange reserves to overseas markets to purchase consumer goods, and then send them to the people for free. First of all, this trick has nothing to do with stimulating the domestic economy. If you import general consumer goods, it may suppress the domestic market. When importing commodities, in terms of China's scale, what price will be increased? With such a trillion-dollar purchasing power, which country can meet China's needs? However, foreign exchange reserves have been reduced by 1 trillion yuan, and the central bank has over-issued RMB 2 trillion, and the consequences are the same.

Of course, maintaining large-scale foreign exchange reserves in China is still extremely beneficial to the stable operation of the economy. On the one hand, it shows that China has strong economic strength and has a lot of room for regulation. The Chinese government has the confidence to respond to the crisis, which is far from the point of relying on printing money to stabilize people's hearts. On the other hand, it also makes China have a strong ability to pay foreign debts and other normal foreign trade needs. At the moment of the current economic crisis, it is very important to ensure the stability of foreign direct investment and prevent large-scale capital outflows.

In addition, foreign exchange reserves are not impossible to move at all. Domestic investment growth can be driven by promoting import growth. After enterprises exchange foreign exchange through bank loans, they can use them to purchase more foreign technology and machinery or purchase certain overseas assets, which can directly boost economic growth. Increasing imports will also be of great help to the economy of exporters. Now is the era of globalization, and one prospers and one loss is an important contribution made by China to the global economic recovery.

Most importantly, although foreign exchange reserves must be used, there are no restrictions on investing in many large state-owned enterprises in China that are listed overseas. There is a good example. Since last year, the four major state-owned commercial banks in China have basically completed overseas listing. In addition to the Agricultural Bank of China, the listing of the other three banks has achieved great success, which is in sharp contrast to the bankruptcy of major foreign financial institutions at the same time. Several of the major domestic sovereign funds and the Foreign Exchange Administration have made an indelible contribution to the purchase of overseas stocks of banks.

Recently, CICC has invested US$30 billion to inject capital into the Agricultural Bank of China. Due to the spread of the financial crisis, domestic companies face great uncertainties in overseas IPOs. At this critical moment, foreign exchange reserves have been used to inject capital into the Agricultural Bank of China, giving it a lot of room for improvement of the internal risk management system and enhance its management capabilities. If the Agricultural Bank of China, the main source of agricultural funds in the country, is successfully listed, it will undoubtedly play an important role in stimulating rural consumption growth, promoting rural infrastructure construction, creating employment for migrant workers, and accelerating agricultural production. This is the way foreign exchange reserves should play a role.

Of course, Zheng Feilong also said that the preservation of foreign exchange reserves is currently facing a very urgent problem. The global economic crisis is very serious, the euro and the British pound have depreciated significantly, and the depreciation of the US dollar is only a matter of time before the depreciation of the US dollar. Most of the foreign exchange reserves belong to US dollar assets and must be prepared for the future. From his point of view, only by changing the foreign exchange reserves in the form of "currency" to the foreign exchange reserves in the form of "resources" can truly maintain their value. It is necessary to reduce the US bonds in the foreign exchange reserves and relatively increase oil reserves and resource reserves.

Speaking of this, Yang Xing continued, "Now everyone understands it. Although this foreign exchange reserve is jealous, it cannot be used directly in China. Let me add here that the joint-stock reform of our four major domestic banks, underwriters of Goldman Sachs and JP Morgan, were all gaining bank stocks at a low price at the time. Now they sell non-core assets. I think we use the US dollar that is about to depreciate to acquire bank stocks in their hands at a discount, increase bank controlling rights, and no longer do anything to outsiders."

"And these major banks can also use the support of the country's foreign exchange reserves to accelerate overseas layout. Our own banks lack experience compared to foreign multinational banks, but in order to avoid competition, they just hide at home. They always have to go to the outside world to fight the storm and increase their knowledge. Now it is a good opportunity. Now we have money, and many European and American financial institutions are eager for cash. We don't have to acquire them in full. We can carefully select some high-quality companies to buy some of their shares at low prices, get one or two seats, and become strategic investors. This can also provide strong financial support for other companies to buy the bottom overseas, right?"

When everyone heard it, it made sense. At the beginning, the idea of ​​reforming domestic financial institutions was to divest the non-performing assets of several major state-owned banks and use excellent assets to form joint-stock companies to list overseas. In addition to utilizing foreign capital, they also wanted to introduce foreign management experience and talents. However, there have always been objections to our practice of listing the best bank assets overseas and allowing foreign financial institutions to obtain shares. Now, it is the time to take the opportunity to repurchase shares at a low price from a business perspective.

It just caused new debate about Yang Xing's proposal to purchase shares of overseas financial institutions. In theory, the transformation of foreign exchange reserves from asset-based to physical form is indeed inseparable from financial support. But the source of this round of economic crisis is financial institutions in various countries. Now no one can tell how much debts the financial institutions that were famous in the past still have. If the Lehman or the two-family crisis repeats itself, wouldn't this investment be wasted?
Chapter completed!