a country (say, China) exports goods to the United States. Its exporters earn Dollars but need domestic currency, RMB (to pay workers, buy raw materials, service debt). The bank of the exporters credits their deposit account with RMB, and the central bank of China credits the bank’s reserves in RMB. So the Dollar reserves end up at the Bank of China (an asset of the Bank of China, a liability of the Fed).
when china exports her exporters earn dollars but needs rmb to pay workers and materials
