Gold and exchange currency reserves of the state, General characteristics...

State gold and foreign exchange reserves

General Characteristics

International currency units and freely convertible currencies constitute the reserve currency that is used by countries to settle debts on their international accounts or as a reserve for national currencies.

Definition

Reserve currency is the name given to foreign currency, which the state keeps as part of its foreign exchange reserves for use in international trade and other international settlements.

The reserve currency, in order to be recognized as such, must meet the following four conditions:

• have a stable (stable) domestic and international value (value);

• play a significant role in international trade;

• freely exchange in the foreign exchange market;

• have free convertibility.

The reserve currencies usually use dollar, euro, Swiss franc, pound sterling and yen. Prior to the replacement of European currencies by euro , the role of reserve currency was also fulfilled by German mark and French franc.

The main reserve currencies - are gold and the dollar. Note that currently the main gold holders are developed and developing countries in almost equal proportions. There is nothing strange: the population of traditional East Asian countries, regardless of their economic situation, prefers to accumulate gold in the form of wealth for many centuries. At the same time, in Europe and the United States, gold is considered a direct equivalent of money, which can be used if necessary. The research also shows that China, India, South Korea, Taiwan and Singapore are among the top ten owners of gold and foreign exchange reserves. China, ahead of Germany, moved to third place, and taking into account the reserves of Hong Kong, as the owner of a total reserve of more than $ 600 billion, it ranks second in the world.

Factors contributing to the weakening of the euro and the strengthening of the dollar

During the global crisis and the economic recession and recession accompanying it, there were significant fluctuations in the exchange rates of major currencies as weakened and intensified multidirectional factors associated with risk and the expected rate of return. Although since 2008 the US dollar exchange rate relative to the euro has fluctuated within narrower limits, its volatility remained high, until the end of 2011 and in the first quarter of 2012. In 2012, the dollar strengthened once again due to the weakening of the euro's position caused by the debt crisis in the euro area and the threat of turning it into a financial crisis as a whole in the EU.

Such a volatile situation has a significant impact on the state of the gold and currency reserves of countries: some of them have the ability to increase reserves, while others are forced to use these reserves to cover growing deficits in public budgets or to pay external debts from reserves. Thus, there is a direct correlation between the value of gold and foreign exchange reserves on the state of the country's economy and finances, as well as the general situation in the world economy and the system of international finance.

The total volume of world foreign exchange reserves in 2012 exceeded 8 trillion US dollars. However, almost all of the increase in reserves is accounted for by rapidly developing countries and partly by countries with economies in transition (emerging countries, including China, India, Russia). Although one-third of the world's reserves are accounted for by China alone ($ 3.6 trillion in 2012), the largest percentage increase in reserves was recorded in Latin America, including Mexico and Brazil. Japan accounts for 1.1 trillion dollars. The United States also increased its reserves, which as of December 7, 2012 amounted to 527.3 billion dollars, and gold reserves - 936.7 tons.

One of the main sources of accumulation of reserves in developing countries and countries with economies in transition is the resumption of growth in capital inflows to these countries. An incentive for further substantial increases in reserves could also be lessons learned from the financial crises of the past decade, during which it seemed that countries with large foreign exchange reserves were more able to withstand external shocks.

However, self-insurance in this form is very costly for developing countries, since trillions of dollars stored as reserves and invested to finance budget deficits in leading developed countries could otherwise be used by them to develop their own economies. It also seems paradoxical that individual countries continue to accumulate reserves for self-insurance, despite a substantial increase in the amount of IMF resources to meet the funding needs of those Member States that face external shocks. Moreover, such a situation points to the importance of moving ahead with the reform of the world's reserve system.

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