Foreign exchange reserves
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Foreign exchange reserves are the foreign currency deposits held by national banks of different nations. These are assets of governments which are held in different reserve currencies such as the dollar, euro and yen.
History
Reserves were formerly held only in gold, as official gold reserves. But under the Bretton Woods system, the United States pegged the dollar to gold, and allowed convertibility of dollars to gold. This effectively made dollars appear as good as gold. The US government eventually abandoned the gold peg, making the dollar a reserve currency by fiat only.Purpose
Reserves can be used by the country's central bank to purchase the country's currency in an intervention. This allows it to control the exchange rate; increasing demand for the country's currency increases its value as compared to the currencies of other nations. Countries often have reserves because they fear speculation and economic shocks might affect their exchange rates, and they want to be able to keep their rates steady.Levels
At the end of 2004, 66% of the identified official foreign exchange reserves in the world were held in United States dollars and 25% in euros [link].
| Central Bank/Monetary Authority | billion USD |
|---|---|
| People's Republic of China | $941 (June) |
| $864 (July 1) | |
| Republic of China (Taiwan) | $260 (July 1) |
| $253 (July 7) | |
| $224 (July 1) | |
| $162 (June) | |
| $128 (May) | |
| $126 (June) |
These few holders account for more than 50% of total world foreign currency reserves. They regularly consult at the EAS on proposals such as the Asian Currency Unit, a future reserve currency.
The adequacy of the foreign exchange reserves is more often expressed not as an absolute level, but as a percentage of short-term foreign debt, money supply, or average monthly imports.
See also
- International reserve system
- Balance of payments
- Official gold reserves
- Reserve currency
- Special Drawing Rights
External links
Articles
- [WSJ.com - Speculative Funds Going to China Worry Officials About Yuan's Peg]
- [China: behind the growing foreign exchange reserves - 2004-11-01]
- [United Nation Database for foreign reserve (A little tricky to use)]
- [Current Foreign Exchange of different countries with Detail]
- [Foreign Exchange Reserves in East Asia: Why the High Demand? (2003-11, 04/25/2003)]
- [Chinese foreign reserves to exceed $1 trillion (March 29, 2006)]
Data
- [Foreign Exchange of different countries annually]
- [Press Release: Revised IMF Annual Report Data on Official Foreign ... - November 19, 2003]
Speeches
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