Topic: Foreign reserves - page 2. (Read 435 times)

If you as a citizen hold some other country's currency then it's just in your wallet. You are no different from a Forex trader who waits for the value to grow.

Foreign reserves are to be transacted from bank to bank or brokers in facilitating global transactions and investments. Usually in the form of USD since it is the global reserve currency and easier to transact and widely accepted. But today countries wanting to trade with China, their central banks are using yuan to facilitate transactions because their economy is bigger than their importers. Yuan could become the Foreign reserves of other countries if more countries consider it more than the USD.

Countries that make a surplus each year like to stockpile some of their excess income by storing additional funds in other currencies, this in turn can help support the value of their own currency because it's shown to have some reserves and the value is not completely based on thin air. However it is a tricky situation, because those currencies are controlled by another country that has the ability to print even more and devalue those holdings. It's a fine balance, because they don't want to devalue it too much, but by devaluing those currencies it is possible to make any money the government has borrowed from overseas worth less over time - so it makes a lot of sense to do this.

I think foreign reserve refers to the value of a country's worth in financial instrument like bonds apart from the currency. Maybe savings that a country have with another country like bonds, Treasury bills, foreign banknotes.

It is also in form of savings that a country have deposited officially in another country bank for savings, reserve or to be used but at the time it has not been used then it will be referred to as foreign reserve.

A country might execute a project or contract for another country and decide not to be paid and reserve the debt as reserve.

So it may be referred to the worth of money a country has outside it shores including financial instruments. It increases trust on the country or decreases it depending on the worth and financial strength.

If it's in a bank account then expect that the physical currency has already circulated back to the economy or has been exchanged already with the origin of the currency. I don't know about other foreign currency but US accounts for their currency being lost in an annual scale so they print out to offset or balance the circulation with consideration to the projected lost currency. I'm not familiar with how foreign reserve makes for an indicator of the positive or negative movement of the economy so I can't say much about it, maybe I'll learn something about that, any video recommendations to start with the basics?

No, it doesn't. Read again some of the responses above. Foreign exchange reserves have nothing to do with individual investments. In spending, foreign exchange reserves must be carried out through government policy for domestic economic interests. However, you can liquidate your investment at any time for your own benefit. The two won't fundamentally influence each other.

Saving of foreign exchange reserves is a good step to stay your economic strength. Now , dollar is used World wide but one should also spend money in good assets like real estate. But dollar can shoot up and also can go down. For strength of country economy,our currency stability matters a lot and
if our currency is stable then no need to take reserve as a foreign currencies then foreign countries will buy things by our country ,one should make strong their currency but this is hypothetical situation due to many reasons.Politics matters a lot to  make strong or weak our currency .

High demand for scarce goods and services can lead to inflation, or  better still, inflation is created when consumption is greater than productivity. Decrease in Foreign Reserve can only contribute to inflation if the reserve currency is used mostly for consumption of scarce goods and services of the country that owns it.

Your country's Foreign Reserve is nationally rather than individually/privately owned. It decreases when it's spent or sold for another goods/currency by those who control it. It still decreases if your government sell it to you and buy up your local. currency
Selling your local currency for dollar would increase the price of dollar if the demand for dollar is greater than supply, while your local currency would decrease in value if there are more sellers than buyers. Demand for your local currency would organically increase (consequently increasing its value) if your economy have enough better quality goods and services that are in high demand

I can assume that there is a mistake in the question - currency reserves are not an asset that "controls" inflation. Rather, it is an indicator of the quality of the economy, since the foreign exchange reserves show the productivity of the foreign economy, the country's trade turnover and profit for the past years. By its state we can judge about the state of economy of a certain state. This suggests that gold reserves also serve as emergency reserves in case of economic collapse, giving strength to recover.

The only nuance is that by selling reserve currency on the domestic market, the government can "smooth" inflation or speculative movements on the currency market

I assume that the answer is yes, because if an individual deposits an amount of $10,000, for example, in any bank within the country, it is part of the foreign reserve present inside the country and does not leave abroad, so I think.

As long as your money is in the central banks under the control of the government, it is certain that it is considered part of the state’s foreign reserves, and they will certainly use it in the event of a shortage of foreign exchange reserves in the government’s treasury.

This means that in theory you are the owner of the foreign exchange in your bank account, but the real owner is the government.

Yes of course! I believe I've already answered it as part of deposits/banknotes (through banks) is part of the foreign reserves. Only that the central bank is the reserve custodial, you can't remove it.

Removing the central bank, then what you are trying to establish is simply "Impossible," the central bank has to be involved to call it a "Reserve", mere banks can't reserve for the nation, they are only a "Means," but the deposits through them counts.

There can't be any foreign reserve without the central banks as they are the ones with the obligations, they have the central link/control of all banks which individual banks lack, so without them, your "Deposit" is just a deposit as there is no central control to add the deposit to be named a "Reserve" at all. It's just an asset with the bank.

Does it always have to be "currency" per se? I was put under the impression that foreign reserves could be anything that has value and from a different country, like resources used to pay off national debt for instance. From a macro level of management such as a country, it doesn't make sense to hold on to money and use it as a form of systemic store of value for when times are tough, that's a little skewed. It makes much more sense for it to be stuff that has inherent value, like resource or perhaps anything that came from the country of relevance, so it could systematically decrease in amount and actually be a factor in causing inflation. Although I guess for some countries with a lower population count, the concept may still work.

You understood the concept completely wrong. For example, gold acts as a reserve in every government, and every individual buys gold as an investment/asset it mean the reserves of the country increase? No

The reserve is something that the government holds not including the assets of their citizen and to my knowledge, only USD is considered as a reserve currency, not fiat in general. The important reason is that USD is used for every international trade whether it is between a country in Asia and North America or so on but in recent days things have changed which could change the whole dynamics of the dollar if things become successful I mean if international trades becomes possible without involving USD.

Foreign exchange reserves are assets owned by state authorities to stabilize the regional economy and the money exchange rate. There are many types of foreign exchange reserves, they can be gold, securities, foreign currency, and etc. Countries can obtain foreign exchange reserves by purchasing gold bullion or through import and export trade activities

If someone has the currency of a foreign country and saves it, it does not mean that the country loses foreign exchange but instead increases the exchange rate because of the large demand. For example, many dollars are saved as foreign exchange, so even though USD is printed many times, the exchange rate remains high because market demand for dollars is always high. America is also the country that holds the largest gold reserves

its not actually inflation.. its the FOREX exchange rate changing

when you buy foreign currency it sits in a bank that allows foreign currency. you still have bank balance that remains the same in that currency unit. but the forex rat changes meaning when you convert it back you may get more/less of your native currency back.

the effects of forex rate changes (as a separate thing) do not impact much the day to day purchasing power of goods or services within the nation that use that currency

for instance in the last 3 years... $1 to UK pound
2020 £0.86
2021 £0.70 (↓ 19%)
2022 £0.70 (↑ 37%)

the UK retail market of everyday purchases did not change by a down of 19% or up by 37% due to forex rate changes

however.. international trade of things like oil do fluctuate based on forex.. however.. UK oil when taking advantage of the good times do not trickle down the benefits to the retail price of fuel.

for instance retail products did not get 37% cheaper in 2022-2023.. however UK fuel prices are no longer £1.90 a litre but now £1.50 a litre

You are answering your own question. The foreign currency reserves are held by the central bank of a certain country, not by the citizens of that country in their personal bank accounts. Usually the central banks are holding their currency reserves in other central banks, not in the form of cash, but in the form of highly liquid government/treasury bonds.
In general, having less foreign reserves mean that the central bank of that particular country can't intervene in the currency markets, when the national currency drops down in value. The countries with less foreign reserves tend to have higher inflation levels and less valuable national currencies.
When more people want to open bank accounts in USD or Euro, this means that the demand for USD/EURO in that country does up and the demand for the local currency does down. This means that the local currency becomes less valuable.

I think the answer is No, the reason being that the individual having such foreign currency in their domi account will count it as an investment for themselves, whereas the one kept by the government is a reserve for the nation's economy. You said it already on the OP (which I think you already have your answer to there). If the value of the government foreign reserve is positive, that means the country's economy will be good, but if it's an individual account that holds some foreign currency and perhaps the value is positive, that means it's profitable to the individual alone.

The result of foreign is used by every country to import goods from Bangladesh, so it is a strong asset of every country and when the foreign reserve of a country decreases, many problems appear in that country, especially the increase in the price of goods, no country can run alone because every country is one.  The country is dependent on other countries and has to import goods from other countries, so in that case foreign reserves are necessary, otherwise imports will stop and the country will be in danger.

What I am saying is that if central bank reserve is not mentioned, are citizens money in domiciliary account counts to be part of the foreign reserves in the country?

I'm not well-versed in economic matters, but I believe this is a mistaken assumption. How can they increase the value of a local currency? Do you mean an increase in the quantity, like printing more money? Central banks can do that, and even the US did so during the pandemic by printing more money.

The US printed more than $3 trillion in 2020 alone. Here’s why it matters today

First, you might want to change the domiciliary account to something like a USD/foreign currency account for more people to understand. My experience with international dealings shows that domiciliary accounts are known in Nigeria and perhaps a very few other countries.

As for the question, Foreign reserves are the assets in the care of the central banks of a country and they could be bonds, deposits/banknotes and other securities backed by the government and contractual agreements. In your case, the deposit is part of it, but mind you, the reserves are often used to back liabilities as well. Just because you deposited $1000 doesn't mean that a liability of $5000 will not happen on the same day. So, as you deposit your foreign currency, the bank merely owes you that amount but that doesn't mean that particular deposit wouldn't be spent as the foreign reserves continue to find the concluding summation between the country's assets and liabilities. And if citizens do not spend from the reserve, the government might.

In case all of the citizens didn't spend FX but deposited, the government would still sustain their foreign obligations. But in this case, if the government earns more FX on their own, then it won't depend on citizens' FX savings and the foreign reserves will not be affected but increase. In case both the government and citizens decide not to spend their foreign reserves but add to it, of course, it will continue to grow.