Foreign exchange reserves are reserves of foreign currency and gold of a country. They are stored in the Central Bank. These funds are at the disposal of government bodies. Gold and foreign exchange reserves are used in settlements on foreign trade transactions, to repay the country's external and internal debt, as well as for investment projects.
The need to create
Gold and foreign exchange reserves are required to cover the temporary excess of payments for various types of international settlements over budget revenues. The size of stocks held by the Central Bank of the country is an important indicator. Its value characterizes the ability of the state to make constant payments related to external settlements.
In other words, foreign exchange reserves are highly liquid financial assets. They are under the control of those state bodies that carry out monetary regulation.
These funds, if necessary, are used to finance the resulting deficit in the country's balance of payments.
Signs of gold reserves
Reserves held by the Central Bank of the country have the following characteristics:
- are national highly liquid reserves that relate to the main instruments of state regulation in the implementation of international payments;
- act as a testament to the strong position of the state in financial terms;
- are the guarantor of the stability of the national currency;
- ensure uninterrupted fulfillment of the country's international obligations.
The composition of foreign exchange reserves
Inventories held by the Central State Bank are divided into two groups of assets. The first of these includes gold, which can be found in coins and bullion, as well as platinum, silver and diamonds. These assets always have the opportunity to put up for sale or use in any other way, which will allow to fulfill their obligations to repay external debt.
The foreign exchange reserves of the second group are funds in foreign currency. In Russia, it includes the euro and the US dollar. The assets of the second group in our country are represented by the currency of Japan, as well as special positions and rights in the IMF.
Management of gold reserves
Three models have been developed and are operating that define the relationship for the disposal and distribution of state reserves. Gold and foreign exchange reserves are owned by the Treasury or the Ministry of Finance. At the same time, the central bank is assigned purely technical functions.
Some foreign exchange reserves of the countries of the world are subordinate to the specific management mechanism that the Treasury of this state has chosen. So, for example, happening in the UK.
Gold and foreign exchange reserves of the countries of the world may be in the ownership of the Central Bank of the country. He is also the manager of these stocks. This model is accepted in Germany and France. Central banks of these countries manage gold and foreign exchange reserves and make an independent decision on the structure of building state reserves. Mixed models for the disposal and ownership of gold and foreign exchange reserves adopted in Russia, Japan and the United States.
State Stock Requirements
The reserves that each country creates are insurance. They are able to protect the national economy of any state from possible macroeconomic risks. In this regard, the gold and foreign exchange reserves of the Central Bank must satisfy a number of requirements. One of them is universality. This means the possibility of application in any industries and fields.
Gold reserves must also have the ability to quickly move in space.
Any placement of stocks provides for their return over time. That is why the maintenance and formation of foreign exchange reserves requires certain costs. The Central Bank does not receive income from storing stocks. However, with a sufficiently large number of them, the state may decide to issue loans to other countries at interest.
Influence on inflation
Do the country's gold and foreign exchange reserves influence the growth of the depreciation of money supply? This issue is still controversial. There is a definite opinion that with the growth of stocks, the amount of money supply in the country decreases, which helps to reduce inflation. However, most scientists disagree with this position. They argue that with the growth of state stocks, the inflation rate in the country will certainly increase.
Gold and foreign exchange reserve security
Providing a certain level of state reserves allows you to perform a number of tasks. Among them are the following:
- support for the country's currency;
- maintaining confidence in state policy;
- management of monetary funds;
- avoidance of shock in the crisis period by reducing external vulnerability and preserving the liquidity of financial assets in foreign currency;
- maintaining the country's rating as a reliable and self-confident state;
- the role of the support of the national currency, backed by external assets.
Gold and foreign exchange reserves of Russia
Reserves of the Central Bank of our country are formed of two parts. One of them is the excess revenues received by the federal budget. It was from them in 2004 that the formation of the stabilization fund of the Russian Federation took place. The second component is international reserves, which are managed by the Bank of Russia. These funds, expressed in foreign currency, have various functions and sources of formation. However, at this stage, their investment in the country's economy is considered inappropriate.
Gold and foreign exchange reserves of Russia, as of November 22, 2013, amounted to 505.9 billion US dollars. Their main share is in euros and dollars (90%). Nine percent is gold.
Gold and foreign exchange reserves of the Russian Federation are represented mainly in US dollars (over 64%). Only twenty-seven percent of the reserves are allocated to the euro. These indicators testify to the dollar orientation of export-import operations of Russian manufacturers.
There is an upward trend in foreign currency assets held in Central Bank reserves. This is facilitated by the strengthening of the Russian stock market. In this regard, the share in monetary gold reserves is constantly decreasing. This is due to a drop in the reliability of these investments. Over the past two decades, rising gold prices have lagged significantly behind inflationary processes. In addition, this asset is not liquid. It can not be converted into cash in a short time. In addition, gold does not bring any income to the Central Bank. In this regard, it becomes clear the shift in emphasis in favor of foreign currency assets.
Similar trends are characteristic of other countries. The central banks of a number of states (Holland, Belgium, Australia, etc.) have already begun selling gold from their reserves.
US gold and foreign exchange reserves
America's reserves include all currency in circulation. At the same time, those funds that are in the cash vaults of the authorities are not taken into account. In addition, the composition of US gold and foreign currency reserves includes the finances of commercial banks held in the accounts of state reserve banks.
When calculating the extended dollar overhang, the
monetary base is included
, which consists of the debt of the authorities, decreasing by the amount of those liabilities that are on the balance sheet of the Federal Reserve System. When calculating this indicator, the amount of international liabilities and assets of the country's authorities are taken into account.
US gold and foreign exchange reserves (according to the analysis) provide only 15 percent of the money supply. If those who hold government securities decided to pay them off due to a lack of confidence in the dollar, the amount of money supply would be only three percent.
The United States remains the world's largest state-holder of gold, despite the fact that the current volume of this precious metal is almost three times lower than the post-war maximum. At the same time, the size of the aggregate reserves of the Central Bank of Europe and all European countries is more than ten thousand tons of gold, and this is higher than this indicator in the USA.
Economists analyze data on the ratio of gold reserves held by a country and the value of its public debt. In this regard, Switzerland has the best position, and the United States - the worst.
To become the first among the states of the world community in terms of accumulated gold, the United States of America was allowed by their geographical location and geological features. During the first five years of the so-called “gold rush” alone, about three hundred and seventy tons of precious metal were mined. This explains the high share of gold in the state reserve of the country. It currently stands at about seventy-four and a half percent. In mass terms, it is 8133.5 tons.
It is also logical that the USA has built the world's largest gold depository. Its owner is the Federal Reserve Bank. The fact that the eurozone has a greater amount of yellow metal in face value is explained by the presence of the International Monetary Fund on its territory. However, gold reserves in Europe are controlled by the United States Congress. Even the decision to sell the precious metal must be superimposed by a US resolution.