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    Hey,

    I was just reading some article about China's currency reserves topping two trillion US dollars. But the article said that the foreign currency reserve growth was fuelled by an increase in investment from overseas as China's stimulus package widely affected their economy and kept the country an attractive place to invest in.

    Firstly, I couldn't understand why China's economy experiencing an increase in investment from overseas lead to an increase in currency reserves. But here's the conclusion I’ve come to.

    People from outside China exchanged their currency for the Yuan. The amount of Yuan increased in the Chinese economy and this would have lead to intense inflation so the Peoples Bank of China exchanged the Yuan for foreign reserves to keep their currency stable.

    Can someone confirm whether I’m right or wrong? If I’m wrong please explain how the foreign currency reserves really grow.

    Thank you.
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    People have to buy Yuan (using foreign currency) to fund investments
    ->Central bank exchanges Yuan for foreign currency
    ->More foreign currecny reserves
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    Thanks for the confirmation.
 
 
 
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