1. Accommodate the balance of payments deficit and adjust temporary imbalances in the balance of payments.
2. Intervene in the foreign exchange market to stabilize the domestic currency exchange rate.
3. It is the fundamental guarantee for a country’s external borrowing and debt repayment.
International reserves are a symbol of a country’s economic status and also reflect its ability to participate in international economic activities.
The international reserves of the IMF member countries consist of monetary gold, foreign exchange reserves, special drawing rights and reserve positions in the F IMF. Since foreign exchange reserves account for more than 95% of non-gold reserves, the management of international reserves is essentially the management of foreign exchange reserves.
Extended information
The composition of international reserves
(1) Monetary gold: gold held as a financial asset during the currency crisis. Tip: Since the monetary authorities cannot make external payments in physical gold when performing gold reserve functions, gold can only be counted as potential international reserves, not real international reserves.
(2) Foreign exchange reserves: External liquid assets held by the monetary authorities, mainly bank deposits and treasury bills.
Tips: Foreign exchange reserves are the most important component of international reserves, accounting for more than 95% of non-gold reserves.
(3) The reserve position of the International Monetary Fund: refers to the assets in the general account of the Fund that member states can freely withdraw and use, including 25% of the member states’ quota paid to the Fund that can be freely withdrawn. Exchange currency (reserve tranche position) and local currency used by the Fund (extra-reserve tranche position)
(4) ?Special Drawing Rights?: It is a free allocation of the International Monetary Fund based on the quota paid by member states. Book assets that can be used by member states to repay IMF loans and repay balance of payments deficits between member state governments. The Special Drawing Rights are valued against a basket of currencies.