Currency reserves - Financial definition
Concise definition of the term currency reserves
Currency reserves are foreign currencies held by a country's central bank to manage exchange rates, settle international debts, and stabilize the national currency. They are a key component of a country's foreign reserves.
Comprehensive definition of the term currency reserves
Currency reserves, part of the broader category of foreign reserves, include assets like foreign banknotes, deposits, bonds, and other government securities denominated in foreign currencies. These reserves enable countries to influence their exchange rates and ensure liquidity for international trade and financial transactions.
For example, China holds significant U.S. dollars as part of its currency reserves to stabilize the yuan and maintain trade balance. Central banks may intervene in the foreign exchange market by buying or selling currency reserves to address balance of payments issues, manage inflation, and build investor confidence in the nation's economic stability.