China Now Has The Highest Forex Reserves In The World

Forex reserves are an essential part of a nation's economy. They help ensure that the local currency retains its value and can provide a form of insurance in times of economic emergencies.

The main foreign currencies that countries hold are often dollars and euros, mainly for their value and the fact that they are the default currencies for international transactions – which is why the US and the EU don't have much in their reserves.

The top forex reserves holder right now is China who has a balance of $3.2 trillion.

When it comes to international trade, having a large stockpile gives China a lot of options. With a large reserve, it can choose to use it to influence world events. This is mostly because having a lot of financial assets means that other countries have less of them.

China sits currently at the top with its $3.2 trillion reserves. The second largest forex reserve is owned by Japan who hold around $1.3 trillion held in its banks. Switzerland is in third place with $785 billion and in fourth place is Saudi Arabia with $486 billion.

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 large forex reserves is to help boost an economy. Investors find it more reassuring in dealing with a country that is able to protect their investments. A large forex reserve also allows a country to pay off its debts to other countries.

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