Foreign Exchange Reserve, also known as deposit Reserve, refers to Foreign Exchange assets held centrally by central banks and other government agencies of various countries, which can be converted into Foreign currencies at any time to meet the needs of international payment.
Usually, the source of foreign exchange reserves is and capital inflows, which are concentrated in national central banks to form foreign exchange reserves.
The specific forms are: short-term deposits of the government abroad or other payment methods that can be cashed abroad, such as foreign securities, checks, promissory notes, foreign currency bills of foreign banks, etc., which are mainly used for payment. When the domestic currency is sold in large quantities, the foreign exchange reserves are used to purchase the domestic currency for intervention, so as to maintain the domestic currency.
The accumulation of foreign exchange reserves will make exporters unable to cover their costs and go bankrupt.
At the same time, holding large foreign exchange reserves in paper currency opens the door for foreign exchange issuers to escape their debts through inflation, which will lead to huge foreign exchange losses for foreign exchange holders and bank bankruptcies.
