Japan came in second, holding $1.3 trillion, and Switzerland followed with $890 billion. This blog post by CFR’s Brad W. Setser explains how China and other countries hide their foreign exchange reserves. This Congressional Research Service report PDF examines the debate over exchange rates and currency manipulation. A highly valued dollar makes U.S. imports cheaper and exports more expensive, which can hurt domestic industries that sell their goods abroad and lead to job losses. This imbalance can worsen during times of financial turmoil, when investors seek the stability inherent to the dollar. Some analysts argue that the cost of the dollar’s dominance for manufacturing-heavy U.S. regions such as the Rust Belt are too high, and that the United States should voluntarily abdicate.
Other statistics that may interest you Financial landscape of Saudi Arabia
In addition to facilitating trade, most countries, including China, also hold foreign exchange reserves to ensure the stability of their currencies and facilitate other foreign transactions. Foreign currency reserves can also be used to control exchange rates, which in turn affects global trade. If a currency, whether fixed or floating, begins to deviate from its desired rate with a foreign currency, the central bank can buy and sell reserves as needed to restore the intended exchange rate.
How did the U.S. dollar become the world’s leading reserve currency?
- The U.S. treasury market remains by far the world’s largest and most liquid—the easiest to buy into and sell out of—bond market.
- Also, because it is considered a petrodollar, the Canadian dollar has only fully evolved into a global reserve currency since the 1970s, when it was floated against all other world currencies.
- However, Chinese policymakers are wary of the lessons from previous currencies PDF that rapidly internationalized, and they have imposed strict controls on the flow of money that have hamstrung the renminbi’s growth.
- Yet, few serious contenders have emerged, making it unlikely that the greenback will be replaced as the leading reserve currency anytime soon.
- These sources provided the necessary data on foreign exchange reserves, including gold, for the top 10 countries as of the first quarter of 2024.
- John Maynard Keynes proposed the bancor, a supranational currency to be used as unit of account in international trade, as reserve currency under the Bretton Woods Conference of 1945.
U.S. foreign reserves, including foreign currencies of mostly euros and yen, were valued at $250 billion in September 2024. The United Kingdom, which also did not make the top 10 list, held $213 billion in foreign reserves as of June 2024. Without adequate reserves, a country may be unable to pay for critical imports, such as crude oil, or service its external debt. Inadequate reserves can also limit a central bank’s available responses to an economic crisis.
- Treasury securities, making it the second-largest foreign holder of U.S. debt after Japan.
- The Smithsonian Agreement, struck a few months later by ten leading developed countries, attempted to salvage the system by devaluing the dollar and allowing exchange rates to fluctuate more, but it was short-lived.
- Central banks often hold currency in the form of government bonds, such as U.S. treasuries.
- Foreign exchange reserves are a fundamental aspect of a nation’s financial health, providing a safety net against economic volatility and facilitating international trade.
- Asian and South Asian nations dominate foreign currency reserves, accounting for eight of the top 10.
- Major commodities such as oil are primarily bought and sold using U.S. dollars, and some major economies, including Saudi Arabia, still peg their currencies to the dollar.
Register today and get free and unlimited access to top 10 foreign reserve country all Goldhub market data, tools and analysis. Reserve currencies have come and gone with the evolution of the world’s geopolitical order. International currencies in the past have (excluding those discussed below) included the Greek drachma, coined in the fifth century B.C.E., the Roman denarii, the Byzantine solidus and Islamic dinar of the middle-ages and the French franc.
In the first half of the 20th century, multiple currencies did share the status as primary reserve currencies. Although the British Sterling was the largest currency, both the French franc and the German mark shared large portions of the market until the First World War, after which the mark was replaced by the dollar. Despite having the highest gold reserves globally, the USA stands fourth with $811,811.40 million in total reserves, including $232,761.25 million in forex and $579,050.15 million in gold.
How Much in U.S. Treasuries Does China Hold?
Some have proposed the use of the International Monetary Fund’s (IMF) special drawing rights (SDRs) as a reserve. The value of SDRs are calculated from a basket determined by the IMF of key international currencies, which as of 2016 consisted of the United States dollar, euro, renminbi, yen, and pound sterling. These sources provided the necessary data on foreign exchange reserves, including gold, for the top 10 countries as of the first quarter of 2024.
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After the euro’s share of global official foreign exchange reserves approached 25% as of year-end 2006 (vs 65% for the U.S. dollar; see table above), some experts have predicted that the euro could replace the dollar as the world’s primary reserve currency. See Alan Greenspan, 2007;29and Frankel, Chinn (2006) who explained how it could happen by 2020.3031However, as of 2022 none of this has come to fruition due to the European debt crisis which engulfed the PIIGS countries from 2009 to 2014. Instead the euro’s stability and future existence was put into doubt, and its share of global reserves was cut to 19% by year-end 2015 (vs 66% for the USD).
But critics say adopting cryptocurrency as legal tender constrains a government’s policy options during a crisis, and that the volatility of cryptocurrency reduces its viability as a means of exchange. However, some countries are experimenting with using blockchain technology to create digital versions of their existing traditional currencies. According to the latest available data, the total value of all foreign exchange reserves equaled nearly $12.35 trillion dollars in the first quarter of 2024. Saudi Arabia also holds considerable foreign exchange reserves, as the country relies mainly on the export of its vast oil reserves. It keeps large amounts of foreign funds in reserves to act as a cushion should this happen.
When China’s and Hong Kong’s reserves are considered together, the total is more than $4 trillion. Asian and South Asian nations dominate foreign currency reserves, accounting for eight of the top 10. The United States is also harmed by currency manipulation—when another country holds down the value of its currency to maintain a large trade surplus. If a country keeps the value of its currency artificially low by accumulating dollar reserves, its exports will become more competitive, while U.S. exports will become comparatively more expensive.
The Swiss National Bank’s strategic accumulation of these reserves highlights the country’s focus on financial stability. Of all the countries in the world, China had, by far, the largest international reserves in 2024, with 3.59 trillion USD in reserves and foreign currency liquidity. Japan was the only other country with over a trillion U.S. dollars in reserves in early 2024, with a total of 1.3 trillion U.S. dollars. Maintaining foreign currency reserves is vital to the economic health of a nation. The 10 nations with the largest foreign currency reserves had combined reserve assets of $9.3 trillion as of May 2024, more than 43% of which was accounted for by China and Hong Kong. China has by far the largest foreign currency reserves, with over two and a half times more than the second-largest reserve holder, Japan.