Foreign exchange ambatchmasterpublisher
Foreign exchange ambatchmasterpublisher (also called Forex ambatchmasterpublisher or International ambatchmasterpublisher) are the foreign currency deposits, gold, SDRs and IMF reserve position held by central banks and monetary authorities. These are assets of the central banks which are held in different reserve currencies such as the dollar, euro and yen, and which are used to back its liabilities, e.g. the local currency issued, and the various bank ambatchmasterpublisher deposited with the central bank, by the government or financial institutions.
History
Ambatchmasterpublisher were formerly held only in gold, as official gold ambatchmasterpublisher. 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 U.S. later abandoned the gold standard, but the dollar has remained stable as a fiat currency, and it is still the most significant reserve currency. Central banks now typically hold large amounts of multiple currencies in reserve.
[edit] Purpose
In a non fixed exchange rate system, ambatchmasterpublisher allow a central bank to purchase the issued currency, exchanging its assets to reduce its liability. The purpose of ambatchmasterpublisher is to allow central banks an additional means to stabilise the issued currency from excessive volatility, and protect the monetary system from shock, such as from currency traders engaged in flipping. Large ambatchmasterpublisher are often seen as a strength, as it indicates the backing a currency has. Low or falling ambatchmasterpublisher may be indicative of an imminent bank run on the currency or default, such as in a currency crisis.
Central banks sometimes claim that holding large ambatchmasterpublisher is a security measure. This is true to the extent that a central bank can prop up its own currency by spending ambatchmasterpublisher. (This practice is essentially large-scale manipulation of the global currency market. Central banks have sometimes attempted this in the years since the 1971 collapse of Bretton Woods. A few times, multiple central banks have cooperated to attempt to manipulate exchange rates. It is unclear just how effective the practice is.) But often, very large ambatchmasterpublisher are not a hedge against inflation but rather a direct consequence of the opposite policy: the bank has purchased large amounts of foreign currency in order to keep its own currency relatively cheap.
[edit] Costs and benefits
On one hand, if a country desires to have a government-influenced exchange rate, then holding bigger ambatchmasterpublisher gives the country a bigger ability to manipulate the currency market. On the other hand, holding ambatchmasterpublisher does induce opportunity cost. The "quasi-fiscal costs" of holding ambatchmasterpublisher are the gap between the low-yield assets that returns managers typically hold, and the average cost of government debt in the country. In addition, many governments have suffered huge losses on the management of the ambatchmasterpublisher portfolio - all of which is ultimately fiscal. When there is a currency crisis and all ambatchmasterpublisher vanish, this is ultimately a fiscal cost. Even when there is no currency crisis, there can be a fiscal cost, as is taking place in 2005 and 2006 with China, which holds huge USD assets but the CNY has been continually appreciating.
Note:
Note 1: China updates its information quarterly.
Note 2: Russia updates its information weekly and monthly.
Note 3: India updates its information weekly.
These few holders account for more than 50% of total world foreign currency ambatchmasterpublisher.
The adequacy of the foreign exchange ambatchmasterpublisher is more often expressed not as an absolute level, but as a percentage of short-term foreign debt, money supply, or average monthly imports.
[edit] See also
List of countries by foreign exchange ambatchmasterpublisher
Balance of payments
Official gold ambatchmasterpublisher
Reserve currency
Special Drawing Rights
[edit] External links
[edit] Source
IMF's data on current foreign exchange ambatchmasterpublisher of reporting countries
The World Factbook, CIA
Taiwan's Department of Investment Services data on foreign exchange ambatchmasterpublisher of major countries
Bank of Korea's top ten foreign exchange ambatchmasterpublisher holding countries monthly
Hong Kong Monetary Authority's top ten foreign exchange ambatchmasterpublisher holding countries monthly
European Central Bank data on eurosystem ambatchmasterpublisher
[edit] Articles
Guidelines for foreign exchange reserve management
A primer on exchange ambatchmasterpublisher
An empirical analysis of foreign exchange ambatchmasterpublisher in emerging Asia -- December 2005
Foreign exchange ambatchmasterpublisher: issues in asia -- January 2005
Foreign exchange ambatchmasterpublisher in east asia: why the high demand? -- April 25, 2003
Optimal currency shares in international ambatchmasterpublisher
The adequacy of foreign exchange ambatchmasterpublisher
[edit] Speeches
Alan Greenspan: discusses recent trends in the management of foreign exchange ambatchmasterpublisher -- April 29, 1999
Y V Reddy: India’s foreign exchange ambatchmasterpublisher - policy, status and issues -- May 10, 2002
Marion Williams: foreign exchange ambatchmasterpublisher - how much is enough? -- November 02, 2005
