China Holds a Balance of $3.2 Trillion in Forex Reserves

Flag of ChinaFor any country, Forex holds an important part, and the economy depends on it. When the country has a good economy, the local currency can retain its value and comes as a rescue during tough times and economic emergencies.

Dollar and Euro are two of the strongest currencies that is held by the countries primarily because of their high value, and they are the default currencies for international transaction. This is the main reason as to why European Union and the United States don’t have enough in their reserves.

China now holds the highest Forex reserves in the world with a sound balance of $3.2 trillion.

With such a stockpile of Forex reserves, China is having a lot of options when it comes to international trade. In fact, it can influence the world events because China is having tons of financial assets as compared to other countries.

Federal Reserve Bank of St. Louis

It is not just how much they have that is important but in what percentage they have it. According to bank data, 63.5 percent of the world’s forex reserves are in USD while another 20 percent is in EUR. The Japanese yen and the British pound are both at 4.5 percent.

Looking at the comparison, it is interesting to note that while the yen is in the lower bracket as a forex currency, Japan still manages to hold second place in forex reserves. This is mainly because of Japan’s ability to export large amounts of products. Annually, experts estimate around $605 billion of exports comes from Japan.

Reasons For Holding Forex Reserves

With all these foreign currencies in their reserves, what exactly do these countries do with them?

The main reason for holding forex reserves is to ensure that domestic currencies are at the price they need them to be. For example, countries who have soaring currency values may wish to devalue it by purchasing foreign currencies. They can also maintain the value of a currency by just sitting on their reserve.

Another good reason for having vast forex reserves is to help boost the economy. Investors find it more reassuring in dealing with a country that can protect their investments. A large forex reserve also allows a country to pay off its debts to other countries. Editor Editor

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