Foreign exchange reserves in China impact the supply of currency M2. The increase in reserves leads to a rise in currency supply in the long term. In the short term, the impact is less clear. There is a causal relationship between foreign exchange reserves and M2, with currency supply also affecting reserves. To control inflation and maintain independent monetary policy, China should develop the money market, improve policy tools, and innovate financially. It is important to manage foreign exchange reserves appropriately by addressing reasons for excessive growth, reforming the exchange system, and advancing the foreign exchange market.