My understanding: business A sells USD 1,000 worth of goods abroad. Customer wires USD 1,000 to bank B to the account of business A as payment for the goods.

My understanding: business A sells USD 1,000 worth of goods abroad. Customer wires USD 1,000 to bank B to the account of business A as payment for the goods. This money does not go directly to the account of business A. Bank B sends USD 1,000 to Central bank and gets RMB 7,000 (or whatever the exchange rate is) which go to the account of business A. Bank B ends up with deposits almost entirely in RMB to loan out. Few customers outside China really want those. Compare with a situation in which bank B kept its USD on the books as customer deposits. Then it would have USD to loan out, and the market for such loans is much bigger.