Why Foreign Currency Reserves Are Important – A Beginners Guide

Welcome to illuminati silver, we tell you
the truth about silver. Today is Sunday 18th December 2016 and we
are providing an explanation as to what Foreign Currency Reserves are and why they are important.
We are too well aware that many of our subscribers have differing experiences with and knowledge
of; markets, foreign currencies and International currency trading issues. So as a guide for
those who are perhaps less experienced in these areas we thought we would provide a
brief definition and general guide as to what they are why such reserves are important and
how various Governments use them. Foreign Currency Reserves (Forex Reserves)
is the amount of foreign currencies that are held by the Central Bank of a country. In
general use, foreign currency reserves may also include gold and IMF reserves such as
SDR’s or Special Drawing Rights. 2 Main Reasons for Holding Foreign Currency
Reserves are: 1. To influence the exchange Rate.
With large foreign exchange reserves, a country can target a certain exchange rate.
For example, suppose a country wanted to increase the value of its currency, it could sell it’s
dollar reserves to buy its own currency on the foreign exchange markets. The increased
demand for this currency would appreciate its value. An example of the opposite of this happening
and to which President-Elect Trump has made reference during the Election campaign, is
the case of China who have historically been trying to keep the Yuan undervalued by selling
Yuan and buying Dollars thereby improving their export prospects to overseas markets
– by flooding them with ‘cheap goods’. This is why China has so many Dollar reserves
in excess of $3 trillion worth at the current time. 2. To act as a Guarantor for Liabilities such
as External Debt. If a country holds substantial foreign debt,
holding foreign currency reserves can help to give more confidence in the country’s
ability to pay. If countries have dwindling foreign currency reserves, there is likely
to be deterioration in a country’s credit worthiness.
So Who Decides a Country’s Foreign Currency Reserve?
1. The amount of foreign currency reserves will be decided by the Central Bank / Government
depending on current exchange rates / monetary policy? 2. International agreements: in the Bretton
Woods system for example, countries tried to maintain a certain level of foreign currencies
to be able to protect the value of a currency. In a floating exchange rate there is less
need to hold foreign currency for protecting against speculative attacks. 3. Often an increase in foreign currency reserves
may simply reflect a large current account surplus and a desire to prevent the currency
appreciating too much. There are Problems however in holding Foreign
Currency Reserves: 1. Foreign Currency Reserves are rarely sufficient
to target a certain exchange rate. If speculators sell heavily, then a currency
will fall despite the best efforts of a Central Bank. e.g. In 1992, the UK lost billions of
pounds trying to protect the value of Sterling when it was in the Exchange Rate Mechanism.
Eventually, the UK authorities had to admit defeat and devalue the pound. This was the
time when the much maligned George Soros made a $1 billion in betting against the Bank of
England. 2. Inflation Erodes Value. The problem with
holding foreign currency reserves is that they can lose their value. Inflation erodes
the value of currencies not fixed against gold for example. Therefore, a Central Bank
will need to keep buying foreign reserves to maintain the same purchasing power in markets. 3. They may lose Money on Currency Changes.
In theory a Central Bank can make money through the appreciation of other currencies it holds.
However, many Central Banks have been losing money through the long term decline in the
value of the dollar for example, though recently this situation has reversed.
Knowing all of this now, hopefully when you hear that a country has embarked on a policy
of selling its US Dollar foreign currency reserves, such as China has recently, rather
than assuming it’s because it no longer has confidence in that currency, which many
of the gold and silver pumpers would have you believe, which admittedly could be one
reason, it could also be because it is trying to maintain or prop up the value of its own
currency – the Yuan – for which it has exchanged those dollars or even taking profits on some
of the reserves it owns, especially when the dollar is gaining strength.
We hope you have found this video interesting and informative and if so, please give it
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updates and offers. Our Facebook page which is updated daily can be found at facebook.com/illuminatisilver Disclaimer: Illuminati Silver owners come from a background
of Banking, International Wealth Management and Economics. Having now retired from these
worlds we are not qualified to give investment advice. Therefore, this and other productions
must not be deemed to be giving such advice and merely represent the personal views of
its owners.

32 thoughts on “Why Foreign Currency Reserves Are Important – A Beginners Guide

  1. 3rd!!!!!! 😀 (100th view also!)
    Thanks for the video. It was great! I learned a lot of new stuff 😀
    But I have a question. You said at the end that China might want to sell its U.S. Treasuries if the dollar is going up in value. Do you mean after it has reached what China believes to be near a peak? Or do you mean that they want to get rid of it before it gets even higher because for some reason it would be bad for them if they were holding the dollar when the dollar went up in value?

  2. I think that was a great lesson , I will watch it a few more times. I will be sitting on my hands , this week or longer ,till the knife stops falling . Thanks I S …

  3. This is such an interesting topic. Isnt China is trying to get the yuan into the sdr basket? "Money" has becomes such a scam.

  4. I noted that you made mention of currency losing value over time due to inflation. So on a personal level, if we take surplus currency and move it to gold, silver or other physical assets would this in fact ease a central banks possible problems regarding money supply?My personal view of currency is that is created to flow, just like water in a current. As it moves down stream and river or laps upon the shore, some of it does in fact simply soak away and/or evaporate. That's the inflating away of money/currencies value. That's why it always needs topping up. Whenever I hear the often said sound bite of: "The Dollar/Pound/Yen etc has lost xxx% of it's value over the last xxx years, I chuckle and remember an old joke… Man visits Dr,Man to Dr "Dr my arm hurts when I do this"Dr to Man "Don't do that then"Am I being too cryptic?

  5. Very good voice with a interesting tone 🙂 Mr Sorros works outside of wall street since he doesnt care for the regulations and has a handicapper personality which shows no emotion when placing his bet ! Its not just the money but the play and he is a player . Do you have a vedio on bitcoin ? ty .

  6. Thank you for this video… it often helps [us] when somebody such as I.S. succinctly describes that which one has a vague understanding of.

  7. Are you talkin' to me? Huh? You talkin' to me? Well thank you for that. I have more holes in my understanding than a slice of Swiss cheese. And I appreciate your insight.

  8. One question this SDR…..who takes it serious?

    Why would another fiat paper or whatever it is shut be seen as a valuable thing i know its a mix of all currencys with the US $ the € and pound and Yen and Yuan why this thing this SDR shut been taken serious for the population of the earth…While its just another fiat thing like the Venezuelan Bolivar..

  9. Thank you so much for your input as always. i wanted to ask… what is your thoughts on KAREN HUDES and THE GLOBAL DEBT FACILITY?

  10. According to some in this community, the only future currencies one will have to be concerned with are gold, silver, bullets, and women.

  11. Nicely done!  Would you consider doing one on Credit Swaps?  Perhaps a series of episodes on banking and currency issues which can impact precious metal prices?

  12. Ottawa still has 77 ounces of gold, worth about $130,000 Canadian at current market prices. All of that consists of gold coins, as opposed to large bullion bricks that the government once hoarded.
    Figures show Canada sold 41,106 ounces of gold coins in December and another 32,860 ounces of gold coins in January. Last month, the government sold off another 21,851 in February..last year

  13. in Libya we gotta a lot of reserve but it's all frozen by west… Libyans are very poor today but in fact our central bank got billions



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