Central banks hold foreign exchange reserves in different currencies to maintain the external value of their domestic currency and reduce the impact of economic problems. Foreign exchange reserves became popular after the decline of the gold standard as countries used them through central banks to stabilize exchange rates. Central banks can impact foreign exchange reserves through currency issuance, import/export restrictions, currency value fluctuations, and transferring reserves without affecting domestic currency value. The top foreign exchange reserve holdings are in US dollars, pounds, yen, francs, Canadian dollars, Australian dollars, and euros. Foreign exchange reserves boost confidence, help overcome economic crises, aid currency market control and stabilization, and indicate debt repayment ability and credit ratings. As of now, Pakistan holds $8.4

1. Presentation
Central Banking

3. Definition:
Foreign exchange reserves are also called Forex or
FX reserves and are the amount of foreign currency
deposits that a country’s central bank holds. A
nation’s central bank will have these reserves in
different currencies.
E.g. Dollar , Euro, Pound etc.

4. History :
In the past, during the Breton Woods system
— an international monetary system formed
after the second world war, foreign exchange
reserves were used by countries through their
central banks to maintain the external value
of their currencies at fixed rate.
Subsequently, with the collapse of this
system, the focus changed to foreign
exchange reserves.

5. Governments are able to keep their currencies stable
by holding the currencies of other nations as
reserves; this also reduces the effect of economic
problems. Once the gold standard declined, foreign
exchange reserves became popular.

6. Central Bank Impact on Foreign Exchange
Reserves
1. More Issuance of Domestic Currency
2. Restriction on Import and Export of
Currencies.
3. Increase and decrease in value of Dollar or
local currency.
4. It can transfer can transfer their reserves
around to different assets without affecting the
value of its domestic currency.
5. If a central bank decides to appreciate its local
currency, it doesn't' t need to sell its reserve
directly. E.g China

7. Currency Composition of Official
Foreign Exchange Reserves (COFER)
U.S. dollar
Pound sterling
Japanese yen
Swiss francs
Canadian dollar
Australian dollar, and
Euro

8. Importance of Foreign Exchange Reserves :
1.Confidence in the monetary and exchange rate
policies of the government
2. During time of any crisis foreign exchange
reserves come to the rescue of any country and to
get rid of these crisis.
3. Its help the central bank to enhance the capacity
of controlling the foreign exchange market and
stabilize the foreign exchange rate.

9. 4. 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.
5.Its increases the foreign investor confidence in
the economy of having foreign exchange
reserves .

10. Top 6 Countries with Highest Foreign
Exchange Reserves
1. China $3.31 Trillion
2. Japan $1.25 Trillion
3.KSA $626.80 Billion
4. Russia $527.70 Billion
5. Switzerland 522.18 Billion
6. Taiwan 403.17 Billion

11. Foreign Exchange Reserves Held by SBP(State Bank
of Pakistan) is $3.6 Billion
Foreign Exchange Reserves held by banks
(Commercial Banks) other than SBP is $ 4.8 Billion
Dollars.
Currently Pakistan Held
$8.4 Billion of Foreign Exchange Reserves