Currency Reserve
Foreign currency held by a central bank to manage exchange rates, settle debts, and maintain market confidence.
What is Currency Reserve?
A currency reserve (also called foreign exchange reserve or forex reserve) is the stock of foreign currencies and other liquid international assets held by a central bank or monetary authority. Reserves are primarily held in US dollars, followed by euros, Japanese yen, British pounds, and Chinese renminbi. Central banks use reserves to intervene in foreign exchange markets to stabilize or manage their currency's value, service foreign-currency-denominated debt, and signal financial strength to markets. Adequate reserve levels are assessed relative to short-term external debt, monthly import coverage, and broad money supply. China and Japan hold the world's largest forex reserves.
Example
China's People's Bank of China holds approximately $3.2 trillion in foreign exchange reserves — the world's largest — primarily in US Treasuries, euro-denominated bonds, and gold. These reserves give China the capacity to intervene in currency markets to limit renminbi depreciation and maintain export competitiveness.
Source: IMF — Currency Composition of Official Foreign Exchange Reserves (COFER)