Gold Reserves – An International Investors Guide
Foreign exchange reserves are basically money and other financial reserve assets like gold held by a national bank or other similar financial institution that are mainly held to secure the exchange rate of a country’s currency against that of other countries’ currencies. Currencies are always traded in pairs, so the value of one currency is always equivalent to the value of the other country’s currency. The major role that forex reserves play in the functioning of the foreign exchange market is that they protect the balance between two countries in the process of trade. If a country has more foreign exchange reserve than another then its currency would be stronger and its position in the market would be firmer.
The Forex reserve position of a country serves two major functions. First, it gives an advantage to the exporter of the currency of his country since he can purchase a quantity of currency of a country without having to pay the premium that the banks demand from their clients. The second function is that it provides foreign trading opportunities for the importer of that currency who is not permitted by law to provide currency of his country directly to its customers. This is possible since foreign banks act as clearing houses for the Forex reserves of these countries.
In order to strengthen their currency, foreign banks sell their currency reserves. In this way, they increase the supply of currency that they own. Since more foreign currency reserves mean more foreign assets being traded, the value of each currency rises. In fact, the value of all currencies is basically determined by the value of the international Forex reserves. If there was no foreign currency reserves, the value of currencies would decline since the supply is limited.
Foreign exchange reserves can be divided into two categories: fixed and circulating currencies. The fixed Forex reserves include U.S. dollar, British pound, European Euro, Japanese Yen, Swiss franc, Canadian dollar and Australian dollar. The other category, namely circulating currencies, include Chinese Renminbi, Malaysian Ringgong, Indonesian Rupiah, Indian Rupees, Nigerian Franc, Swiss franc, European Euro, Norwegian krone, New Zealand Dollar and the Singapore dollar. Usually, central banks to buy up large amounts of foreign-exchange reserves to ensure the continued functioning of the financial system. In addition to buying up fixed and circulating currencies, central banks also buy up foreign-exchange reserves, which are in liquidation. In doing so, they help stabilize the market.
The United States is the only major country which owns foreign exchange reserves in the form of gold. On the other hand, foreign countries have accumulated an amount of foreign currency reserves ranging between fifty to one hundred billion dollars. Most of them are located in Europe, while there are some located in Asia as well. Among the countries with the highest foreign currency reserves are China, India, Japan, Switzerland, Germany and England. The world’s largest gold bullion, located in Switzerland, is the main reserve of England.
In order to purchase gold, foreign currencies need to be converted into gold. At present, there are numerous countries that are known for their high level of foreign exchange reserves in the form of gold. Among the countries with the highest level of gold bullion, the top four are China, India, Japan and Switzerland. All these countries have been accumulating high levels of gold bullion since the 1980s.
Since the foreign investors started trading in the international financial markets, there has been a significant increase in the demand for gold. Gold has always remained a safe investment due to its intrinsic value and its wide range of applications. It is used to buy jewellery, coins and also for investment purposes. In order to increase the purchase of gold by international investors, there were special transactions that were made between banks. These transactions helped in increasing the demand for gold and hence its prices.
To keep track of the economical front, India needs to develop its economic front as well. To get a comprehensive view of how India is progressing economically, you can check out the India office of the Worldometers Group. This company is considered to be one of the leading business enterprises that provide complete business solutions to a large number of clients across the world. As far as the international investors are concerned, they invest in the Indian market because it offers a lot of opportunities in the form of domestic gold market, government share, equity and foreign portfolio investments. The other advantage of investing in gold is that you will get a fair price for your assets.
