Foreign exchange reserves

Foreign exchange reserves are foreign-currency assets held by a country's monetary authority to support its currency, meet external payments, and intervene in foreign-exchange markets.

Foreign exchange intervention: A monetary authority's purchase or sale of currencies to influence exchange rates or market conditions. Selling reserves can support a domestic currency; buying foreign currency can build reserves.
Official reserve assets: External assets controlled by monetary authorities and readily available to meet balance-of-payments financing needs. This is the formal category that most closely defines foreign exchange reserves.
Currency crisis: A sharp loss of confidence in a currency that can trigger rapid depreciation or a forced policy change. Reserves may be sold to meet demand for foreign currency during a crisis.
Triffin dilemma: The tension between supplying a global reserve currency and maintaining confidence in the issuing country's currency. Demand for reserve assets can create pressures for the countries that issue them.
Foreign exchange reserves of China: The foreign-currency assets managed by China's monetary authorities, among the world's largest reserve holdings. China illustrates how scale and exchange-rate management shape reserve policy.
Reserve adequacy: An assessment of whether a country's reserves are sufficient for its external financing and liquidity risks. Adequacy measures translate reserve holdings into capacity to withstand external shocks.
Special drawing rights: An international reserve asset created by the International Monetary Fund, valued from a basket of currencies. SDR holdings are included in official reserve assets alongside foreign currencies.
Capital flight: Large-scale movement of financial assets out of a country in response to risk or expected losses. Reserve buffers can buy time when private capital leaves suddenly.
Impossible trinity: The principle that a country cannot simultaneously maintain a fixed exchange rate, free capital movement, and independent monetary policy. Using reserves to defend a peg interacts with capital mobility and domestic monetary autonomy.
Foreign exchange reserves of Japan: The foreign-currency assets held by Japan's monetary authorities, including resources used in exchange-rate intervention. Japan's holdings show how a major creditor economy uses reserves amid currency-market pressure.

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