| Foreign Exchange Reserves |
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HISTORY Reserves were formerly held only in Gold , as Official Gold Reserves . But under the Bretton Woods System , the United States pegged the Dollar to gold, and allowed convertibility of dollars to gold. This effectively made dollars appear as good as gold. The US government eventually abandoned the gold peg, making the dollar a reserve currency by Fiat only. PURPOSE Reserves can be used by the country's Central Bank to purchase the country's currency in an intervention. This allows it to control the exchange rate; increasing demand for the country's currency increases its value as compared to the currencies of other nations. Countries often have reserves because they fear Speculation and economic shocks might affect their exchange rates, and they want to be able to keep their rates steady. LEVELS At the end of 2001, 68.3% of the identified official foreign exchange reserves in the world were held in United States Dollar s, 13% in Euro s, 4.9% in Japanese Yen , 4% in Pound Sterling and 0.7% in Swiss Franc s {Link without Title} .
These few holders account for more than 50% of total world foreign currency reserves. They regularly consult at the EAS on proposals such as the Asian Currency Unit , a future reserve currency. The adequacy of the foreign exchange reserves is more often expressed not as an absolute level, but as a percentage of short-term foreign debt, money supply, or average monthly imports. SEE ALSO
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