Foreign Exchange Reserves

Foreign exchange reserves are assets, mainly cash and other reserve assets such as gold, held by central banks to help manage a nation's financial stability, with most reserves held in major currencies, especially the United States dollar and, to a lesser extent, the euro. Central banks maintain these reserves to help settle balance of payments obligations, to influence exchange rates and to preserve confidence in financial markets during periods of stress, and the reserves themselves can take the form of banknotes, bank deposits, government securities and gold holdings. As an economic indicator, the level of a country's foreign exchange reserves signals its vulnerability to financial crises and its capacity to absorb external shocks, which is why credit rating agencies and international organizations track it closely.