The economic upheaval caused by the pandemic and the war in Ukraine has renewed concerns about the downfall of the dollar as the leading reserve currency. As of July 2023, China has by far the most reported foreign currency reserves of any country, with more than $3 trillion. India, Russia, Saudi Arabia, Switzerland, and Taiwan also have large reserve holdings. The United States currently holds roughly $244 billion worth of assets in its pool of reserves, including $36 billion worth of foreign currencies. By buying and selling currencies on the open market, a central bank can influence the value of its country’s currency, which can provide stability and maintain investor confidence.
How did the U.S. dollar become the world’s leading reserve currency?
The substantial gold reserves underscore the country’s economic strength and financial security. Countries hold foreign reserves for several reasons, including to balance international trade, intervene in the currency markets to stabilize the domestic currency (for liquidity in times of crisis), and to provide confidence for foreign and domestic investors. In addition to accounting for the majority of global reserves, the dollar remains the currency of choice for international trade. Major commodities such as oil are primarily bought and sold using U.S. dollars, and some major economies, including Saudi Arabia, still peg their currencies to the dollar. Japan holds the second spot with a total of $1,290,604.98 million in reserves, including $1,230,377.14 million in forex and $60,227.84 million in gold.
These reserves are vital for maintaining the won’s stability and supporting South Korea’s dynamic economy. India ranks fifth with $651,950.34 million in total reserves, consisting of $593,423.00 million in forex and $58,527.34 million in gold. India’s growing reserves reflect its rising economic stature and proactive fiscal policies aimed at ensuring economic stability. China is a net exporter of goods, with much of that foreign trade being conducted in U.S. dollars. Chinese companies thus receive U.S. dollars but must convert them into Chinese currency via the banking system. The central bank then uses the dollars to purchase U.S. government securities, which are considered to be among the safest investments on the planet.
- It keeps large amounts of foreign funds in reserves to act as a cushion should this happen.
- Since the end of World War II, the dollar has been the world’s most important means of exchange.
- Foreign exchange reserves, also called Forex reserves, in a strict sense, are foreign-currency deposits held by nationals and monetary authorities.
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- Russia stands seventh with $590,222.33 million in total reserves, including $424,146.08 million in forex and $166,076.25 million in gold.
Top 10 Countries With the Biggest Forex Reserves
For instance, if the value of the Brazilian real starts to fall during an economic downturn, the Central Bank of Brazil can step in and use its foreign reserves to bid up its value. Conversely, countries can intervene to stop their currencies from appreciating and make their exports cheaper. Gold is an important component of central bank reserves because of its safety, liquidity and return characteristics – the top 10 foreign reserve country three key investment objectives for central banks. As such, they are significant holders of gold, accounting for around a fifth of all the gold that has been mined throughout history. China leads the global list with an overwhelming total of $3,469,776.82 million in foreign exchange reserves, including $3,308,705.00 million in forex reserves and $161,071.82 million in gold reserves.
Financial landscape of Saudi Arabia
However, this practice has become more difficult as currencies have become increasingly intertwined as global trading has become easier. Because Canada’s primary foreign-trade relationship is with the United States, Canadian consumers, economists, and many businesses primarily define and value the Canadian dollar in terms of the United States dollar. Thus, by observing how the Canadian dollar floats in terms of the US dollar, foreign-exchange economists can indirectly observe internal behaviours and patterns in the US economy that could not be seen by direct observation. Also, because it is considered a petrodollar, the Canadian dollar has only fully evolved into a global reserve currency since the 1970s, when it was floated against all other world currencies. Switzerland ranks third with $864,426.87 million in total reserves, comprising $794,931.41 million in forex and $69,495.46 million in gold.
Meanwhile, the dollar’s outsize role in international trade could have negative consequences for the global economy. As a country’s currency weakens, its goods exports should become cheaper and thus more competitive. But because so much trade is conducted in U.S. dollars, other countries do not always see this benefit when their currencies depreciate. “Both the United States and the world at large would benefit from a less dominant U.S. dollar,” writes Michael Pettis, a professor of finance at Peking University. For years, leaders of BRICS countries have discussed a framework for a shared currency, with proponents arguing that it would protect against devaluation when the dollar rises. However, experts point out that structural challenges in BRICS countries, including a lack of robust central banks and monetary policies, make it infeasible.
Another danger of using gold as a reserve is that the asset is only worth what someone else is willing to pay for it. During an economic crash, that would put the power of determining the value of the gold reserve, and therefore Russia’s financial fallback, into the hands of the entity willing to purchase it. She holds a Bachelor of Science in Finance degree from Bridgewater State University and helps develop content strategies. Login to filter countries by characteristic, economic data category and geography, view data over a date range, compare dates and download data. For more detailed analyses and updates on global economic trends, follow my LinkedIn profile and stay informed about the latest developments in global finance.
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As of February 2022, Russia’s foreign exchange reserves totaled some $630 billion. However, sanctions imposed by the European Union (EU), the U.S., and other nations in response to Russia’s invasion of Ukraine in February 2022 rendered most of those reserves inaccessible to the central bank. The world’s largest current foreign exchange reserve holder is China, a country holding more than $3 trillion of its assets in a foreign currency. Such an arrangement makes international trade easier to execute since most of the trading takes place using the U.S. dollar. A simple explanation for China’s accumulation of foreign currency could be its consistently positive and substantial trade balance. When China exports goods and services, it accepts the foreign currency, usually U.S. dollars, and holds that currency in reserve.
Board of Governors of the Federal Reserve System
- The IMF would also need to be empowered to control the supply of SDR, which, given the United States’ de facto veto power within the organization’s voting structure, would be a tall order.
- Foreign exchange reserves are foreign-denominated assets held by a central bank for the purpose of backing liabilities and influencing monetary policy.
- Treasury Secretary Janet Yellen, say that the aggressive use of sanctions could threaten the dollar’s hegemony.
- Russia’s foreign exchange reserves are held mostly in U.S. dollars, much like the rest of the world, but the country also keeps some of its reserves in gold.
- “Both the United States and the world at large would benefit from a less dominant U.S. dollar,” writes Michael Pettis, a professor of finance at Peking University.
- A simple explanation for China’s accumulation of foreign currency could be its consistently positive and substantial trade balance.
- As a major financial hub, these reserves are critical for ensuring the stability of its financial system.
Taiwan’s reserves are crucial for maintaining its economic resilience and supporting its export-driven economy. The percentage share held in gold of total foreign reserves is calculated by the World Gold Council. The value of gold holdings is calculated using the end of quarter LBMA Gold Price, which is published daily by ICE Benchmark Administration for the value of other reserves are taken from IFS, table ‘Total Reserves minus Gold’. The argument is that, in the absence of sufficiently large shocks, a currency that dominates the marketplace will not lose much ground to challengers. South Korea completes the top ten list with $420,983.76 million in total reserves, comprising $414,004.46 million in forex and $104.45 million in gold.
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In the past due to the Plaza Accord, its predecessor bodies could directly manipulate rates to reverse large trade deficits. Quarterly official gold holdings from 2000, as well as the latest available month-end data for the Top 100 holders. Treasury securities, making it the second-largest foreign holder of U.S. debt after Japan. This chart was updated in November 2024 and reports data available at that time. Data are taken from the International Monetary Fund’s International Financial Statistics (IFS), November 2024 edition, and other sources where applicable. IFS data are two months in arrears, so holdings are as of September 2024 for most countries, June 2024 or earlier for late reporters.
Foreign exchange reserves can include banknotes, deposits, bonds, treasury bills, and other government securities. These assets serve many purposes but are most significantly held to ensure that a central government agency has backup funds if their national currency rapidly devalues or becomes entirely insolvent. John Maynard Keynes proposed the bancor, a supranational currency to be used as unit of account in international trade, as reserve currency under the Bretton Woods Conference of 1945. Even though most of the world left the gold standard in 1971, most countries still retain large gold reserves. The United States, followed by Germany and Italy, held the largest amount of gold reserves worldwide as of December 2018. Treasury Secretary Janet Yellen, say that the aggressive use of sanctions could threaten the dollar’s hegemony.
Japan’s significant reserves are vital for maintaining economic stability and supporting its export-oriented economy. To highlight one of the top 10 above, India held $655 billion in foreign currency reserve assets as of May 2024. Its central bank, the Reserve Bank of India, intervenes in the foreign exchange market to stem excess volatility in its domestic currency, the rupee. However, foreign currency is the most abundant asset in most foreign reserves, and most nations hold the vast majority of their foreign currency reserves in U.S. dollars, followed by euros and the Japanese yen. Many experts agree that the dollar will not be overtaken as the world’s leading reserve currency anytime soon. More likely, they say, is a future in which it slowly comes to share influence with other currencies, though this trend could be accelerated by the aggressive use of U.S. sanctions and growing U.S. financial instability.