Foreign-exchange reserves

Reserve assets are held by a central bank notes or on the asset side in foreign currency, precious metals, special drawing rights and reserve positions in the International Monetary Fund resources to foreign exchange intervention and to finance external deficits. Foreign exchange reserves in the balance of payments ( sub-account: capital account, foreign exchange balance ) recorded a country or a single currency area. They are usually in the form of deposits before the short term or in cash. They are caused by current account surpluses of a state or economic area. In principle, it is net international reserves, if the foreign liabilities of their own monetary authority, were subtracted from the total foreign exchange reserves, so gross reserves.

• 2.1 foreign Exchange
• 2.2 Gold
• 2.3 Special Drawing Rights ( SDRs)
• 2.4 Reserve position in the International Monetary Fund ( drawing rights )

Development

The history of currency reserves is closely associated with the development of the money and foreign exchange markets and the different monetary systems. Currency reserves are used to shape monetary policy.

History

The late 19th and early 20th century is predominantly from the classical gold standard with gold currency in circulation / gold (gold and banknotes circulate ) and the associated gold parity marked. In Germany, in 1875 the so-called " third cover " principle, according to the amount of notes in circulation had to be covered to a third by gold reserves. After the First World War dominated the short term free floating exchange rates in the form of gold bullion currency / gold core currency ( notes only circulate ). In 1924, most countries returned to fixed exchange rates. Now followed a gold exchange standard, which means that their central banks gold or foreign currency held in stock in the value of a portion of the circulating amount of money. This system collapsed in the Great Depression. The period after the Second World War is dominated by the 1944 adopted in Bretton Woods at the Convention establishing the International Monetary Fund ( IMF) and the introduction of convertibility of all currencies against. The U.S. dollar became the international reserve currency, the U.S. central bank pledged to ensure to exchange dollars at a specified price in gold. This requirement could not be met in the early 1970s due to the huge current account deficit of the United States. The U.S. subsequently gave the exchange rate of the dollar and set free the gold convertibility of the dollar overridden. The Fixkurssystem had finally failed. Gold as a reserve asset principal was replaced by the Special Drawing Rights and lost until now gradually more important.

Presence

In the 21st century, the security of the money is mainly guaranteed by other currencies and the function of the International Monetary Fund and the central banks in the individual member states.

The global currency reserves are in January 2008 according to the IMF around 6.5 trillion U.S. dollars. Around two-thirds of the reserves hold Asian countries. In recent years, the world currency reserves have risen sharply. At the beginning of 2003 were those at about 2.3 trillion U.S. dollars. In December 2007, the world monetary reserves reached an amount of 6.561 trillion U.S. dollars. Climbing the world currency reserves much faster than the performance of the world economy, this may be an indicator of global inflation.

Traditionally, taking the U.S. dollar as a reserve currency former a key position. In the meantime, however, the euro has increasingly established itself as an alternative "eye to eye ". The German Bank forecast in 2007 that the euro's share gradually rises to the foreign exchange reserves by 2010 to 30 to 40 percent. It justifies this with the great exchange rate uncertainty, which is exposed to the U.S. dollar ( among other things due to the huge current account deficit of the U.S.). The bank believed that the uncertainty could cause stability central banks seeking to greater diversification of their reserves. Moreover, in several countries is a gradual change in the monetary policy ( away from a pure dollar peg towards a binding to a basket of currencies) to watch. A third reason is to be seen in the rise in the reserves themselves; Central banks are under political pressure to invest the reserves earn interest. For this reason, a diversification strategy appears worthwhile.

Components

Currency

Foreign currencies are fundamentally divided in relation to the monetary reserve in three different exposures of a country or a single economic space from non-residents: bank deposits, securities and deposits at the Bank for International Settlements (BIS). The bank balances in foreign currency again divided primarily between day or time deposits. The securitized money market investments outside their own currency area consist mostly in the form of relatively safe bonds of foreign countries, but also increasingly from other income investments in economic areas or countries in foreign currency, since a higher return can be achieved here. Also to include the foreign exchange holdings of effective foreign banknotes and coins, the so-called varieties.

Gold

Gold is a physical asset that is held in the form of bars or coins. Its amount can be uniquely determined by weighing. In general, the gold holdings of each country are held by the central or central banks. Changes in the gold stock as a currency reserve may result from price and volume changes. The share of international gold reserves to the total foreign exchange reserves declined in the last three decades through sales and a lower importance for the currency hedging of 60 % in 1980 to 9 % in 2005.

Special Drawing Rights ( SDRs)

These artificial currency that exists only as book money in 1969 also created by the IMF in order to counteract the " slowdown in reserve growth and absolute reduction in gold reserves " and to ensure liquidity for international trade. They are to a currency basket (today: U.S. dollar, euro, yen and British pound) bound and can be availed by the individual members with balance of payments deficits, depending on the respective quotas ( maximum amount of funds, which the IMF makes available ). If a Member country of its Special Drawing Right is exercised, purchased by the IMF quasi foreign currencies on " credit ".

Reserve positions in the International Monetary Fund ( drawing rights )

There are interest-bearing liquid assets in credit of a member to the International Monetary Fund which are redeemed in demand. The interest rate is determined by the weighted interest rate for short-term financial investments in the Member States, France, Germany, Japan, the United Kingdom and the United States.

Meaning and application example

Simplified example to support the exchange rate:

Requirements:

• The current account consists only of the negative trade balance position by imports.
• The " balance of capital transfers " is not reflected.
• The capital account consists only of the positions of securities transactions, direct investment and foreign exchange balance.
• The balance of payments is always balanced in the alternative chosen.
• The fact that long-term trade deficits are problematic remains ignored.

Is raised for imported goods with inelastic demand, the price incurred current account deficits in the country. Because the imported goods must be paid in foreign currency, an excess demand created by the currency of the exporting country. This excess demand leads with flexible exchange rates and otherwise constant conditions to a devaluation of its currency. These same devaluation of the domestic currency can be prevented by capital movements of the monetary authorities. Firstly, could the foreign countries - for example through higher interest rates or incentives to direct investment in the country - are prompted by the rise in the price increase revenue domestically to invest ( securities transactions and direct investments ). Or the monetary authorities of foreign countries could their share of the foreign exchange reserves of the interior to increase (foreign currency balance sheet). In all three cases, the excess demand for foreign exchange from abroad would be eliminated.

Special role of export-oriented Asian countries

Strong exports in Asian countries experienced over the past decade rapid growth of foreign exchange reserves. This is particularly clear in the case of the People's Republic of China. This country has overtaken in the sum of currency reserves after several years of a highly successful trade balance in 2006 and since then, even Japan has the highest currency reserves in the world. As at 31 March 2008, these amounted to 1,682 trillion dollars. In April 2011, China's foreign exchange reserves amounted to the first time about three trillion dollars.

This is due to the fact that China exports about 40 % of the goods produced and an unusually high savings rate of 35 % has. Philip D. Wooldridge has China's role in relation to the global monetary reserves defined as follows: " The foreign exchange reserves in China are so extensive that even small changes in the composition can have a significant impact on conclusions regarding trends in aggregate data. " Japan has 1.015 trillion U.S. dollars as of 31 March 2008 on the second highest reserves in the world and therefore no less important. Asia decreed in March 2008 total (excluding Japan ) for about 2 trillion U.S. dollars, thus de facto one-third of the world's currency reserves. One reason for the " hoarding" of U.S. dollar is here to be seen in the Asian crisis.

Currency reserves in millions of U.S. dollars

Below (last extensive data base in the Thomson Financial Datastream for the time being ), the currency reserves for selected countries in the world between the years ends in 2005, 2006 and 2007 until the beginning of 2008 shown.

The euro countries are recorded separately, since the different Member States maintain their own foreign exchange reserves, which are recorded in the balance sheet of the state-owned central bank of the euro area country. For example, the German Bundesbank both the Central Bank of the Federal Republic of Germany, as well as member of the European Central Bank ( ECB). By contractually fixed, unified currency and economy in the European Union, the German Federal Bank submits largely the monetary policy of the ECB.

The foreign reserves of the Federal Republic of Germany were without gold reserves in the summer of 1991, around 58 billion U.S. dollars. The Central Bank of China announced in April 2009 that she had (as of 31 March 2009) a foreign exchange assets of 1.954 trillion dollars (just under 1.5 trillion euros ). On 15 January 2010 they announced their foreign exchange reserves have for the first time, the volume of 2.4 trillion dollars exceeded ( = 2,400 billion).