Foreign-exchange reserves is generally used to intervene in the foreign exchange market to stabilize or influence the value of a country's currency. Central banks can buy or sell foreign currency to influence exchange rates directly. For example, if a currency is depreciating, a central bank can sell its reserves in foreign currency to buy its own currency, creating demand and helping to stabilize its value. High levels of reserves instill confidence among investors and traders. If market participants believe that a country has sufficient reserves to support its currency, they are less likely to engage in speculative attacks that could lead to a sharp depreciation. In times of economic uncertainty or financial market volatility, central banks can use reserves to smooth out fluctuations in the exchange rate, reducing the impact of sudden capital outflows or shocks to the economy. Adequate reserves ensure that a country can meet its international payment obligations, which helps maintain a stable exchange rate by preventing panic in the foreign exchange market. Having substantial reserves allows central banks to implement monetary policies more effectively. They can afford to maintain interest rates or engage in other measures without the immediate fear of depleting reserves, which can influence market expectations positively.[2]
Forex reserves by country
All the figures below have been converted to U.S. dollars, as different countries report data in different currencies. The U.S. dollar equivalents have been calculated using currency exchange rates as well as the gold price at the reported date. Not all countries keep gold as reserves, to avoid physical storage costs and the risks associated with it. In these cases no values are shown in the excluding gold columns.
Top five countries with the largest foreign exchange reserves have reserves of at least 500 billion USD and higher and have maintained such an amount for at least a month.[199][200]
Foreign exchange reserves for the top 5 countries
China
China has the largest reserve since last 14 years.[202][203] The main composition of Chinese forex reserves is approximately two-thirds USD and one-fifth Euros with the rest made up of Japanese Yen and the British Pound. China was the second country to reach $500 billion and the first to reach $1 trillion in reserves. China is also the only country that reached net reserves of $2 trillion and $3 trillion. Chinese forex reserve reached over $3.993 trillion and possibly reached $4 trillion before July 2014 but there was no official figures to confirm it.
Japan
Japan's foreign exchange reserves are one of the largest in the world and are managed by the Bank of Japan (BOJ). These reserves are critical to Japan's financial stability, providing a buffer against economic shocks, facilitating trade and investment, and supporting the value of the Japanese yen. As of 2024, Japan's foreign exchange reserves are typically around $1.2 trillion to $1.3 trillion, making Japan one of the largest holders of reserves globally, second only to China. Japan's reserves are diversified and consist of a mix of foreign currency assets (such as US dollars, euros, and other major currencies), government bonds, gold, and Special Drawing Rights (SDRs) from the International Monetary Fund (IMF). The bulk of Japan's reserves are in the form of foreign government bonds, primarily in US Treasury securities. This allows Japan to earn returns while maintaining liquidity. Other currencies in Japan's reserves include the euro, British pound, and Australian dollar. Japan holds a relatively small proportion of its reserves in gold compared to some other large economies, though it remains a traditional store of value. Japan's gold holdings are in the range of around 765 tons as of 2024, which is a fraction of its total reserves but still significant. These represent a type of international reserve asset created by the IMF to supplement its member countries' reserves. Japan holds a portion of its reserves in SDRs.
Japan's reserves play a role in stabilizing the yen (JPY). In the 1990s and beyond, Japan’s foreign exchange reserves grew steadily, driven by trade surpluses, especially with the United States and other Asian countries. However, Japan’s reliance on foreign assets and its deflationary environment have influenced its reserve management strategy in recent decades. Japan has increasingly diversified its foreign exchange reserves in recent years. While the reserves remain heavily concentrated in US dollars (particularly in US Treasury securities), Japan has also been exploring other options, including diversifying into other currencies like the euro or even Chinese yuan, though to a much lesser extent than some other large economies. As global economic dynamics shift (for example, due to changes in the US Federal Reserve's policies, or China’s growing influence in global trade), Japan's reserve management strategies may evolve in response to these new realities. Japan's foreign exchange reserves remain a cornerstone of the country’s economic policy, ensuring liquidity and stability in a highly interconnected global economy. With a strong focus on maintaining a robust and diversified portfolio of assets, these reserves help shield Japan from external shocks while supporting the value of the yen. Given Japan's position as a global financial powerhouse, its foreign exchange reserves will likely continue to play an important role in international finance for the foreseeable future.[204]
Switzerland
Switzerland has the third largest reserves in the world. Switzerland became the fifth country to reach $500 Billion in 2014 after Saudi Arabia and the third country to reach $1 trillion at the end of 2020. Swiss reserves are compiled in Swiss francs. After the 2008 financial crisis, the Swiss franc has significantly appreciated against other currencies due to Switzerland's traditional perceived safety which has attracted speculative foreign capital; due to the inflows of investment income by Swiss firms, and due to the large surplus in the trade of goods. To protect the real economy from the sudden speculative appreciation of the currency, the Swiss National Bank began intervening in the currency markets, first with an explicit target of a maximum exchange rate against the euro of 1.20CHF/EUR until 2015,[205] and then through implicit interventions. However, the resilience of the export sector and the continued inflows of capital, has meant that the Swiss Franc has kept appreciating.[206] As a result of this, the SNB has been unable to dispose of its large accumulated foreign exchange reserves since their sale would lead to an even greater appreciation of the currency.
India
India has the world's fourth largest reserves. On 4 June 2021 reserves exceeded $600 billion for the first time and they became the fifth country after Switzerland to do so.[207] During the 1991 Indian economic crisis country only had $5 billion of reserves left which led to subsequent economic liberalisation.[208] Since then the reserves have seen a 127 times increase over 30 years. In April 2024, Foreign-exchange reserves of India hit a fresh all-time high of $642.63 including 803.58 tons of gold reserves. Out of which 403.7 tons of gold is held with Bank of England and Bank for International Settlements, and rest is held domestically. It is done to provide a sense of security and to ensure diversification of risk by spreading gold holdings across multiple locations.[209] In May 2024, India decided to move all of its gold holding with the Bank of England to its domestic vaults, the first batch of 100 metric tonnes of its gold was moved back to India on 31 May 2024. This decision was primarily taken due to the West's unexpected sanctions during the Ukraine war on roughly $300 billion worth of Russian gold kept in various European countries, which caused a sense of insecurity within the Indian government and economic experts.[210][211]
Russia
As of the latest available data in 2024, Russia's foreign exchange reserves are a critical component of its financial stability, representing the country's assets held in foreign currencies, gold, and other liquid assets. These reserves are managed by the Central Bank of Russia (CBR) and serve as a buffer against economic shocks, particularly in times of sanctions, political turmoil, or falling oil prices. Before the Russian invasion of Ukraine in February 2022, Russia's foreign exchange reserves were at record levels, exceeding $600 billion. This large amount was seen as a safeguard against potential financial crises. Following the invasion of Ukraine, Western countries, including the United States and the European Union, imposed severe economic sanctions on Russia. These sanctions targeted Russian banks, individuals, and key sectors, and led to the freezing of a significant portion of Russia's foreign exchange reserves held in Western countries, particularly in US dollars and euros. As a result, a significant portion of Russia’s FX reserves (around $300 billion) was effectively locked out of international markets. In response to the freezing of its reserves, Russia accelerated its efforts to diversify its foreign exchange holdings. This included increasing its gold reserves and building up reserves in currencies like the Chinese yuan. It also sought to move away from the US dollar in trade, particularly with countries in Asia, Africa, and the Middle East.
Russia has also been stockpiling gold as a hedge against potential future shocks to its reserves. Gold, being a traditional store of value, is not subject to the same sanctions and restrictions as foreign currency holdings. As part of its pivot towards non-Western financial systems, Russia has been increasing its holdings in Chinese yuan (CNY) and has forged closer economic ties with countries that are willing to accept alternative currencies in trade. The yuan has become an important component of Russia's reserves as its economy increasingly becomes oriented towards China and other non-Western partners. By 2024, Russia’s FX reserves were estimated to be around $570 billion to $600 billion, with a substantial portion in gold, yuan, and other non-traditional reserve assets. The total value fluctuates due to changes in the exchange rates of the reserve currencies and adjustments to gold holdings. These reserves are essential for stabilizing the Ruble and ensuring that Russia can meet its foreign debt obligations, even under heavy sanctions. The reserves also provide the Russian government with the flexibility to intervene in currency markets if needed, to prevent excessive depreciation of the Ruble. By diversifying its foreign exchange reserves, Russia has reduced its dependence on Western financial systems, thus strengthening its geopolitical position and reducing vulnerability to further sanctions.[212]
Currency composition of forex reserves
The Currency Composition of Foreign Exchange Reserves (COFER) refers to the breakdown of the foreign exchange reserves held by central banks around the world, based on the currencies in which those reserves are denominated. These reserves are typically held in the form of deposits, bonds, and other liquid assets, and they play a critical role in managing a country's exchange rate policy, stabilizing its currency, and meeting international financial obligations. IMF releases the quarterly data on the currency composition of official foreign exchange reserves. The data are reported to the IMF on a voluntary and confidential basis. COFER data for individual countries are strictly confidential. At present there are 149 reporters,[a] consisting of member countries of the IMF, non-member countries/economies, and other foreign exchanges reserve holding entities. From Q4 2016, the data was expanded to include renminbi (CNY).[213] Monetary gold is not covered in COFER but included in reserved assets, a broader scope than that of COFER.[214]
The U.S. dollar remains the dominant currency in global foreign exchange reserves, typically accounting for around 60% to 65% of total reserves, although this share has seen some gradual decline over the past few decades due to diversification trends. The euro is the second-largest currency held in reserves, making up around 20% to 25% of global reserves. The share of the euro fluctuates based on factors like the European Union's economic stability and the policies of the European Central Bank. The Chinese yuan (also known as the renminbi) has been increasingly used in foreign reserves, particularly after China became a part of the International Monetary Fund's Special Drawing Rights (SDR) basket in 2016. Its share is still relatively small compared to the USD and EUR, typically around 2% to 3%. The Japanese yen is another significant reserve currency, though its share is typically lower than the euro or yuan, usually around 4% to 5%. The British pound sterling holds a smaller but still notable portion of global reserves, typically around 4% to 5%. Several other currencies, such as the Swiss franc (CHF), Canadian dollar (CAD), and Australian dollar (AUD), also make up a small but significant portion of foreign reserves. However, none of these currencies surpass the USD, EUR, or JPY in terms of global reserves. The SDR is an international reserve asset created by the International Monetary Fund (IMF). It is not a currency but rather a potential claim on the freely usable currencies of IMF member countries. The SDR basket includes the U.S. dollar, euro, Chinese yuan, Japanese yen, and British pound. While SDRs are not used as widely as the major currencies, some countries include them in their reserves.[215]
Trends and shifts in currency composition
In recent years, many central banks have diversified their foreign exchange reserves away from the U.S. dollar, driven by geopolitical risks, the desire to reduce dependency on the dollar, and the increasing importance of the Chinese yuan. However, this shift has been gradual, and the USD continues to dominate. Major events, such as the 2008 financial crisis, the COVID-19 pandemic, and fluctuations in global trade patterns, have affected how countries allocate their foreign exchange reserves. For example, during periods of heightened uncertainty, central banks may increase their reserves in safe-haven currencies like the U.S. dollar and the Swiss franc. China's increasing global economic influence has prompted a rise in the use of the yuan for trade and reserve purposes. The International Monetary Fund's inclusion of the yuan in the SDR basket in 2016 further legitimized its use as a global reserve currency.[216]
Why the composition matters
The currency composition of foreign exchange reserves affects global financial markets, interest rates, and currency valuations. A high concentration in a single currency (especially the U.S. dollar) can lead to vulnerabilities in times of global economic stress. Conversely, diversification into other currencies may provide greater stability but also presents challenges in terms of liquidity and market depth. For example, during the early stages of the COVID-19 pandemic, many countries increased their foreign exchange reserves to prepare for potential financial disruptions, and the U.S. dollar surged temporarily as investors sought safety. However, over time, countries may seek to reduce their reliance on the U.S. dollar, especially if they are concerned about inflationary pressures or geopolitical risks linked to U.S. policy.[217]
↑ "FAQs". Currency Composition of Official Foreign Exchange Reserves. International Monetary Fund. Archived from the original on 23 April 2021. Retrieved 22 August 2020.
↑ "Key Components of COFER". Currency Composition of Official Foreign Exchange Reserves. International Monetary Fund. Archived from the original on 23 April 2021. Retrieved 22 August 2020.
↑ "Why the Composition Matters". Currency Composition of Official Foreign Exchange Reserves. International Monetary Fund. Archived from the original on 23 April 2021. Retrieved 22 August 2020.
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