Keeping foreign exchange reserves is imperative for the economic health and well-being of a country. Without ample reserves, your country cannot make international trade payments. So, without it, you will not have basic necessities like imported oil to fuel your cars. Foreign exchange reserves also enable the central bank of a country to stabilize a country’s currency and handle any sudden economic crisis. Similarly, it provides an incentive for foreign investors to bring their capital to the country.
That’s why every country in the world strives to keep billions of dollars worth of foreign currencies (mostly the US dollar) in their Central Banks. Not only foreign currencies, but foreign exchange reserves may include other foreign assets, such as bonds, gold, foreign treasury bills, and other government securities.
As you can see from the infographic, we will discuss the countries with the highest foreign exchange reserves.
Let’s dive in!
What Is Foreign Exchange Reserves and Why Is It Important?
Foreign exchange reserves are foreign assets held by the Central Bank of a country. These can be foreign currencies, bank deposits, treasury bills, bonds, government securities, gold, SDRs, and reserve position in IMF (reserve given to IMF). The rationale behind these reserves of foreign currencies, mainly in the US dollar is, to protect the country’s currency against sudden loss of value (devaluation).
Foreign exchange reserves help a country to;
- Maintain the exchange rate of the country’s currency and stabilize its value.
- To meet the country’s demand to finance imports, pay debts, and provide a cushion against sudden economic shocks.
- Large foreign exchange reserves attract foreign investment and help the economy during any financial crisis.
- By investing in multiple reserves, the central bank diversifies and mitigates its risk.
- During times of stress, the Central Banks can provide support to various sectors by liquidating their foreign reserves.
Countries With the Highest Foreign Exchange Reserves
These are the countries with the highest foreign exchange reserves based on the latest data retrieved from various sources, including some countries’ Ministry of Finances, Central Banks, and others. These figures are the latest as issued by the authorities.
According to the latest published data, China has the highest foreign exchange reserves in the world at US $3,306.53 billion. This value includes foreign currency reserves, IMF reserve position, SDRs, Gold, and other reserve assets. China is a leading export country that has a huge trade surplus, which explains this huge reserve.
Japan has total foreign assets of US $1,227.58 billion. The country has a large foreign exchange reserve consisting of foreign deposits and securities, IMF reserve position, SDRs, Gold, and others.
It is worth noting that the foreign bond yield has tremendously contributed to increasing Japan’s foreign exchange reserves
Switzerland has foreign exchange reserves of US $907.24 billion. The leading factor behind such impressive foreign reserves is the Swiss Bank’s efforts to stabilize the Swiss Franc’s value through its interventions in the foreign exchange market.
As of Dec 2022, the value of foreign exchange reserves of Russia is US $577.5 billion. This value declined post-Ukraine war due to restrictions imposed on Russia, mainly importing oil, coal, gold, and other Russian luxury goods.
According to the latest data by the Reserve Bank of India, the country has foreign exchange reserves of US $562.85 billion. The Central Bank intervening to protect the value of the Indian Rupee is one of the contributing factors to the increasing foreign exchange reserves of the country.
Similarly, Taiwan with US $554.93 billion, Saudi Arabia with US $459.87 billion, Hong Kong with US $424 billion (Nov 2022), South Korea with US $416.1 billion (as of Oct 2022), and Brazil with US $324.7 billion are in the top 10 spots of countries with the highest foreign exchange reserves.
The USA has official foreign reserves of US $242.70 billion, with reserves assets consisting mainly of foreign currency reserves, IMF reserve portion, SDRs, and Gold. Singapore has foreign exchange reserves of US $289.48 billion. The Monetary Authority of Singapore (MAS) maintains its foreign reserves by purchasing US dollars in exchange for Singapore Dollars to prevent the currency’s appreciation.
In this article, we discussed the countries with the highest foreign exchange reserves. China dominates the list. Japan is in the second spot, followed by Switzerland.
It is the rundown of 2022, let’s see how things unfold in 2023.