History Of Foreign Exchange Reserves

Foreign exchange reserves basically refer to the foreign currency deposits and bonds held by the central banks and the monetary authorities. However, the term is commonly used in foreign exchange and gold, SDRs and IMF reserve positions. It is even more precisely termed as official international reserves or international reserves. The following article shares a brief review of the history of foreign exchange reserves. So, read on to explore your knowledge about foreign exchange reserves.

Looking into the origin of foreign exchange reserves, we came to know that official international reserves in earlier times was just the means of official international payments, which formally consists only of gold and occasionally silver. But with the passage of time, there were changes in this international reserve. Under the Bretton Woods System, the US dollar started functioning as a reserve currency, so it soon became part of a nation's official international reserve assets. From 1944-1968, the US dollar was convertible into gold through the Federal Reserve System. But certain changes arise in the year 1968. After this year, only central banks could convert dollars into gold from official gold reserves.

Foreign exchange reserves history also reveals that after 1973 no individual or institution was allowed to convert US dollars into gold from official gold reserves. Another major turning point in the history of foreign exchange reserves is in the 1973, where no major currencies have been convertible into gold from official gold reserves. Like other commodities, individuals and institutions now buy gold in private markets. Even though US dollars and other currencies are no longer convertible into gold from official gold reserves, they still can function as official international reserves. With the passage of time of different changes were made in foreign exchange reserves, the quantity of foreign exchange reserves can change as a central bank implements monetary policy today.