Foreign Exchange Rates

Any kind of reserve funds that can be passed between the central banks of different countries. International reserves are an acceptable form of payment between these banks. The reserves themselves can either be gold or else a specific currency, such as the dollar or euro.

The EUR 230 million increase in the month under review owed to the following: EUR 641.4 million worth of inflows comprising incomes from international reserve management (including the rise in the market value of foreign bonds held with the National Bank of Romania), change in the foreign-exchange reserve requirements of commercial banks, a.s.o. EUR 411.4 million worth of outflows consisting in principal repayments and interest payments on public and publicly guaranteed external debt, the change in foreign-exchange reserve requirements of commercial banks, a.s.o. The gold stock stayed at 103.7 tonnes. However, following the developments in the world price of gold, its value dropped to EUR 1,792.98 million; as a result, the international reserves of the National Bank of Romania (foreign exchange and gold) stood at EUR 27.23 billion.

Excess reserves

Foreign exchange reserves are important indicators of ability to repay foreign debt and for currency defense, and are used to determine credit ratings of nations, however, other government funds that are counted as liquid assets that can be applied to liabilities in times of crisis include stabilization funds, otherwise known as sovereign wealth funds. If those were included, Norway, Singapore and Persian Gulf States would rank higher on these lists, and UAE’s $1.3 trillion Abu Dhabi Investment Authority would be second after China. Apart from high foreign exchange reserves, Singapore also has significant government and sovereign wealth funds including Temasek Holdings, valued in excess of $145 billion and GIC, valued in excess of $330 billion. India is also planning to create its own investment firm from its foreign exchange reserves.

History

Official international reserves, the means of official international payments, formerly consisted only of gold, and occasionally silver. But under the Bretton Woods system, the US dollar functioned as a reserve currency, so it too became part of a nation’s official international reserve assets. From 1944-1968, the US dollar was convertible into gold through the Federal Reserve System, but after 1968 only central banks could convert dollars into gold from official gold reserves, and after 1973 no individual or institution could convert US dollars into gold from official gold reserves. Since 1973, no major currencies have been convertible into gold from official gold reserves. Individuals and institutions must now buy gold in private markets, just like other commodities. Even though US dollars and other currencies are no longer convertible into gold from official gold reserves, they still can function as official international reserves.