The 20 countries with the most foreign exchange reserves in the world

Foreign exchange reserves in the world increased by $231 billion during the four quarters to December 2021, reaching $12.9 trillion, according to the U.S. Treasury Department.

Foreign exchange reserves refer to foreign assets held by a country’s central bank. Foreign assets comprise assets that are not denominated in the country’s domestic currency. For example, U.S. government bonds held by the Bank of Japan are foreign assets for Japan.

The Treasury Department detailed that estimated net purchases of $516 billion in foreign exchange were partly offset by a $301 billion decline due to the valuation effects of the dollar’s appreciation over the year.

Foreign Exchange Reserves

Meanwhile, estimated interest income contributed minimally to the increase in reserves.

Although there is no commonly accepted standard for assessing reserve adequacy, the Treasury Department believes that the economies covered in its report continue to hold ample-or more than ample-foreign exchange reserves compared to standard benchmarks of adequacy.

Reserves in most of these economies are more than sufficient to cover short-term external liabilities and expected import costs.

Moreover, the most recent International Monetary Fund (IMF) assessments of reserve adequacy, based on composite benchmarks for emerging market economies for 2020, suggest that reserves are generally adequate.

Foreign exchange reserves

Credible and effective macroeconomic policy frameworks, rather than intervening to accumulate reserves above adequate levels, should serve to buffer external shocks.

This is especially important for economies that have other resources similar to reserves, such as swap lines, sovereign wealth funds, and lines of credit from international financial institutions that can serve as additional buffers.

Moreover, intervention in the foreign exchange market should not be a substitute for a justified macroeconomic adjustment.

In the European Central Bank’s view, the role of the US dollar in all dimensions of international currency use, apart from foreign exchange reserves, has remained stable – or even increased – over the past two decades.

Also, he adds, alternatives to major international currencies often lack the depth, liquidity or other economic and financial attributes needed to attract global investors.

In particular, China is unable to diversify its high foreign exchange reserves, which amount to more than $3 trillion, or about a quarter of global foreign exchange reserves, into its own domestic currency, limiting the potential for strengthening the international role of the renminbi.

Finally, according to the European Central Bank, the Russian invasion of Ukraine could serve as a reminder of the importance of strong institutions, the ability to maintain price stability over the medium term, and geopolitical considerations as determinants of international currency status.


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