Data is latest available from the International Monetary Fund (IMF) and the World Bank.
International Reserves of Countries Worldwide (in US$ Millions)
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Note/1: See footnotes on the Official Reserve Assets and the Other Foreign Currency Assets topic views.
The foreign currency portion of international reserves (IRs) is held in “reserve currencies”—mostly US dollars, but also euros, UK pounds and Japanese yen. SDRs (“special drawing rights”) are international reserve assets created by the International Monetary Fund (IMF), which member countries can add to their foreign currency reserves and gold reserves to use for payments requiring foreign exchange. The SDR’s value is set daily using a basket of four major currencies: the euro, Japanese yen, pound sterling and US dollar.
Making Sense of SDRs
Ample IRs allow a government to manipulate exchange rates—usually to stabilize rates and provide a more favorable economic environment or to purchase its domestic currency to protect the country from an attack by speculators. IRs are also an important indicator of a country’s ability to repay foreign debt and are a factor in determining a country’s credit rating.
During economically challenging times, countries whose private capital inflows do not cover their financing needs bridge the gap by drastically reducing their trade deficits or by drawing down IRs. Worsening trade balances can have the same effect. In the course of 2012, for example, India and Indonesia faced precisely this problem and ended up with declining international reserves, by 3 billion and 1.4 billion of US dollars respectively. According to a study from the World Bank, “Falling international reserves and high current account deficits may constrain monetary policy in some middle-income countries (e.g. South Africa and India). To the extent that reserves are being consumed to meet external financing requirements and imports, countries may be forced to keep interest rates high in order to attract foreign capital flows (or deter outflows).”
In fact, the fragile global recovery in 2012, says the World Bank, and related decreasing exports by developing countries, forced some of them to dip into their international reserves to support their currencies.
In general, it is believed that reserves are “adequate” if they can cover approximately three months of a country’s imports or all of the external debt maturing over the coming year. According to the same World Bank report, “the proportion of crude oil and industrial commodities exporters where international reserves were less than the critical three months of imports rose from 6.3 percent to 9.4 percent between January 2011 and September 2012 and the share of countries with less than five months of import cover rose from 12.5 percent to 25 percent. But in the group of non-oil noncommodities dependent countries, the share of countries with less than three months of import cover rose from 14 percent to 25 percent in the same period, and those with less than five months of import cover rose from 44.4 percent of the total to 58.3 percent.”
Egypt represents one of the most worrisome cases, with international reserves falling from a level at which they could cover more than 7 months of imports in January 2011 to one that would pay for only 3 months of imports in November 2012.
Very high reserves, while assuring in the recent financial downturn, can also have negative implications for the holder of the reserves and for the global monetary system. For one thing, by investing heavily in foreign reserves, a country invests less in its own economy—possibly spending less on education, healthcare and infrastructure—which may have otherwise offered a route to longer-term growth. For another, with most reserves held in US dollars, a stronger US dollar has been supported despite high current account deficits in the US, contributing to global economic imbalances.