currency reserves are monetary deposits in foreign currency held by central banks and competent authorities.
The objective of foreign exchange reserves is essentially to safeguard the national currency of a particular country. In fact, through reserves, central banks are able to influence the currency market.
Currencies from all over the world are present in the currency reserves of central banks, but the most famous one is certainly the US dollar as it is the most widespread currency in the world. The country that holds the highest number of foreign exchange reserves is undoubtedly China.
Practical example of how foreign exchange reserves work: a country’s currency is in deep crisis. To deal with it, the central bank issues more foreign currency on the market so as to make it less in demand and therefore less strong compared to the national currency.
