In the latest data released by the central bank, after two consecutive months of growth, China's foreign exchange reserves experienced a decline in May, decreasing by 28.2 billion US dollars compared to April.

At the same time, the exchange rate of the Chinese yuan also saw a wave of depreciation in May, with the lowest point breaking through 7.15.

These numbers may seem very bad, but upon careful analysis, it is found that the actual problem is not significant, as we are already able to handle it easily.

01, Where did the trade surplus go

The latest trade data released by the customs show that China's trade surplus is still expanding. From January to May of this year, our foreign trade surplus has accumulated to nearly 360 billion US dollars.

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If all the money earned from the trade surplus were put into foreign exchange reserves, how could the foreign exchange reserves continue to decrease?

Therefore, some people speculate that this is because some foreign trade enterprises have directly deposited their trade surplus in American banks, resulting in a decrease rather than an increase in foreign exchange reserves.

However, this kind of speculation is hard to establish, as such operations would face many risks.

Firstly, the fluctuation of the US dollar exchange rate is one of them.

It is almost inevitable that the US dollar exchange rate will fall in the future, and the value of the trade surplus of enterprises will decrease. If they do not settle the exchange at this time and then exchange the US dollars back into Chinese yuan later, there may be a significant loss, and the money originally earned from foreign trade exports will be greatly reduced.Secondly, the wave of bank bankruptcies in the United States has not yet passed. Storing money in American banks could very likely result in a total loss of investment. This is because the insurance coverage for bank deposits in the United States is only $250,000, which is sufficient for ordinary individuals but far from enough for businesses. Moreover, Americans are still continuously withdrawing their deposits from banks to avoid risks, and there is no reason for our enterprises to deposit money in American banks at this time. In addition, the American judicial system is very likely to target our enterprises specifically, and banks may freeze the accounts of enterprises. If enterprises deposit trade surpluses in American banks, the banks may freeze the accounts of the enterprises out of concerns about money laundering and other reasons, thereby affecting the liquidity and efficiency of the enterprise's funds. Therefore, the possibility of enterprises depositing trade surpluses in American banks is not high.

02, The Real Reason

The real reason should be greatly related to the internationalization of the renminbi, which is actually the most effective way for our country to respond to the continuous suppression of the US dollar. Some time ago, the central bank released a piece of data showing that the transaction volume of the renminbi in our country's foreign trade exceeded that of the US dollar for the first time. Now, when announcing trade figures, the specific situation has not been disclosed, but it is very likely that a larger proportion of our exports have begun to use the renminbi for settlement. In this case, the trade surplus formed is actually the renminbi, so there is no possibility of increasing foreign exchange reserves.From another perspective, as an increasing number of trades no longer use the US dollar for settlement, we do not need to maintain a large amount of foreign exchange reserves. At the same time, the proportion of international transactions using the renminbi is rising, which will provide more substantial support for the renminbi's exchange rate, leading to a continuous strengthening in the medium to long term.

03. Buy Gold and Sell US Debt

Conversely, we can increase our gold reserves. In recent years, it has become a global trend for central banks to increase their holdings of gold. On one hand, with the need for diversified global economic development, gold, as an important reserve asset, has gradually gained prominence. On the other hand, as geopolitical risks continue to escalate, central banks aim to reduce the risks associated with asset concentration by increasing their gold holdings.

However, our country's central bank froze the gold reserve data after 2019 and only began to increase gold reserves at the end of last year. This is not surprising, as actual reserves may have been increasing all along, but the data was not updated. Looking back at the historical public data of our country's gold reserves, this has been a common practice.

In summary, the central bank's consecutive seven months of increasing gold holdings demonstrate its confidence in gold, which is also a lack of confidence in the US dollar.Therefore, selling U.S. Treasury bonds will be the norm for a period in the future, and there is no issue of being forced to buy U.S. Treasury bonds. The increase in the balance of U.S. Treasury bonds in some months is merely caused by fluctuations in U.S. bond prices.

With enough gold as a support, the credibility of the renminbi will also become stronger and stronger.