Since 2002, there has been a meteoric rise in the amount of foreign exchange and gold reserves accumulated by countries across the world. From 2002 to 2004, world reserves grew by 85 percent, at a pace three times faster than from 1999-2001.
Having large foreign exchange reserves tend to shield a country from speculative attacks on the domestic currency. Large reserves of foreign currency also allow a government to manipulate exchange rates in order to stabilise the foreign exchange rates and create a favourable economic environment.
In the advent of the Bretton Woods system, many countries began switching their reserves from gold to the US dollar. As such, many countries today hold massive amounts of US currency. However, these countries have also begun to diversify to other currencies including the British Pound, the Euro and the Japanese Yen. The money is often used to back a country’s monetary policies, including its liabilities.
In recent years, Asian countries have been known to be the key accumulators of foreign exchange reserves. Asian countries made up half of the world’s top 20 largest foreign reserves in the world.When you narrow it down further, 6 out of the top 10 are Asian countries, while 4 out of the top 5 come from Asia as well. Furthermore, Asian countries are more likely to hold their reserves in foreign currency, rather than gold.
Here are the top 20 largest foreign reserves in the world according to our Econ Stats database.
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Photo Credit: Earl - What I Saw 2.0