Foreign exchange reserves are assets held on reserve by a central bank in foreign currencies. These reserves are used to back liabilities and influence monetary policy. It includes any foreign money held by a central bank, such as the U.S. Federal Reserve Bank.
Who is responsible for the management of reserve funds?
- 3Among countries, and among monetary or exchange management unions, the entity responsible for reserve management may be a central bank or monetary authority acting either as a principal or as an agent for another repository of reserves such as an exchange fund.
What is wrong with official foreign exchange reserves?
- In measuring and reporting official foreign exchange reserves, some authorities have incorrectly included funds that have been lent to domestic banks, or the foreign branches of domestic banks. Similarly, placements with a reserve management entity’s own foreign subsidiaries have also been incorrectly reported as reserve assets.
How is foreign exchange reserve information made public?
- In many countries, public disclosure of information on foreign exchange reserves is also made through periodic releases, such as statistical releases on international liquidity and summary balance sheets as well as in the annual reports of reserve management entities.
How should the reserve management entity decide which currencies to hold?
- The reserve management entity may, for example, wish to hold some additional liquidity in the main intervention currency, or in specific currencies to f acilitate debt servicing. It may also wish to consider whether other major liquid currencies should be held for purposes of hedging currency risk in the portfolio vis-à-vis other liabilities.