Foreign Exchange Reserves

See: Foreign Exchange.

Foreign exchange reserves, a.k.a. forex reserves, is money and assets in a country’s central bank. Yep, central banks are actually banks...a piggy bank for the country, rather than for an individual or business.

Foreign exchange reserves originally referred only to foreign currencies in the central bank, like foreign cash and foreign investments, but now, with the world getting globalized and all, the term extends to International Monetary Fund reserves, gold reserves, and domestic currency.

Since foreign exchange reserves are used to both pay back debt to other countries as well as lend out money, many currencies (including the domestic one) is held in many countries’ central banks. Reserves at central banks in general are also used as a part of monetary policy. Woot.