Foreign reserves - Financial definition
Concise definition of the term foreign reserves
Foreign reserves are assets held by a country's central bank in foreign currencies, used to back liabilities and influence monetary policy. These reserves include currencies, gold, and other international financial assets.
Comprehensive definition of the term foreign reserves
Foreign reserves play a crucial role in a country's economic stability, enabling central banks to manage exchange rates, settle international debts, and maintain confidence in the financial system. These reserves typically consist of foreign currencies (such as the US dollar, euro, and yen), gold, and Special Drawing Rights (SDRs) from the International Monetary Fund (IMF). Countries with substantial foreign reserves can better handle economic crises, defend against speculative attacks on their currency, and ensure the smooth operation of international trade. For example, China and Japan hold some of the largest foreign reserves globally, using them to stabilize their currencies and support economic policy objectives.