Why Foreign Currency Reserves Are Important – A Beginners Guide

Welcome to illuminati silver, we tell youthe truth about silver.

Today is Sunday 18th December 2016 and weare 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 knowledgeof; markets, foreign currencies and International currency trading issues.

So as a guide forthose who are perhaps less experienced in these areas we thought we would provide abrief definition and general guide as to what they are why such reserves are important andhow 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.

Ingeneral use, foreign currency reserves may also include gold and IMF reserves such asSDR’s or Special Drawing Rights.

2 Main Reasons for Holding Foreign CurrencyReserves 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’sdollar reserves to buy its own currency on the foreign exchange markets.

The increaseddemand for this currency would appreciate its value.

An example of the opposite of this happeningand to which President-Elect Trump has made reference during the Election campaign, isthe case of China who have historically been trying to keep the Yuan undervalued by sellingYuan 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 reservesin excess of $3 trillion worth at the current time.

2.

To act as a Guarantor for Liabilities suchas External Debt.

If a country holds substantial foreign debt,holding foreign currency reserves can help to give more confidence in the country’sability to pay.

If countries have dwindling foreign currency reserves, there is likelyto 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 / Governmentdepending on current exchange rates / monetary policy? 2.

International agreements: in the BrettonWoods system for example, countries tried to maintain a certain level of foreign currenciesto be able to protect the value of a currency.

In a floating exchange rate there is lessneed to hold foreign currency for protecting against speculative attacks.

3.

Often an increase in foreign currency reservesmay simply reflect a large current account surplus and a desire to prevent the currencyappreciating too much.

There are Problems however in holding ForeignCurrency Reserves: 1.

Foreign Currency Reserves are rarely sufficientto target a certain exchange rate.

If speculators sell heavily, then a currencywill fall despite the best efforts of a Central Bank.

e.

G.

In 1992, the UK lost billions ofpounds 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 thetime when the much maligned George Soros made a $1 billion in betting against the Bank ofEngland.

2.

Inflation Erodes Value.

The problem withholding foreign currency reserves is that they can lose their value.

Inflation erodesthe value of currencies not fixed against gold for example.

Therefore, a Central Bankwill 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 thevalue 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 policyof selling its US Dollar foreign currency reserves, such as China has recently, ratherthan assuming it’s because it no longer has confidence in that currency, which manyof the gold and silver pumpers would have you believe, which admittedly could be onereason, it could also be because it is trying to maintain or prop up the value of its owncurrency – the Yuan – for which it has exchanged those dollars or even taking profits on someof 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 ita thumb up and share it on twitter.

Also kindly visit our website at illuminatisilver.

Comand if you haven’t already done so please subscribe as a free member for regular emailupdates and offers.

Our Facebook page which is updated daily can be found at facebook.

Com/illuminatisilver Disclaimer: Illuminati Silver owners come from a backgroundof Banking, International Wealth Management and Economics.

Having now retired from theseworlds we are not qualified to give investment advice.

Therefore, this and other productionsmust not be deemed to be giving such advice and merely represent the personal views ofits owners.

Source: Youtube

Why Foreign Currency Reserves Are Important – A Beginners Guide

http://illuminatisilver.com
http://facebook.com/illuminatisilver
Why Foreign Currency Reserves Are Important

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.

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.

Please view our recent videos:

Gold and Silver Update w/e 16th December 2016
https://youtu.be/ulTkoUYUoFA

Ignore the Dollar Collapse Fear Mongering – Rants Illuminati Silver
https://youtu.be/5iOG7-_vvF0

Gold nanotechnology and AMD - Blindness
https://youtu.be/jNry9Q8aaQs

Fed raises Rates - More to Come - Gold and Silver prices fall
https://youtu.be/3NMz7kZf4eA

Oil prices Jump 6% – Good News for Gold and Silver prices
https://youtu.be/yEPyvytaV5Y

Why is Donald Trump upsetting the Chinese Bear?
https://youtu.be/tB_f9yO9KsI

FED, Gold, Silver, Interest rates and Markets 2016
https://youtu.be/DhUGxJtDmiQ

Gold and Silver Update w/e 9th December 2016
https://youtu.be/1QX6134XbPU

Why Silver May Outshine Gold (cont.)
https://youtu.be/tWqrbebJuZ4

ECB Extends QE but Tapers it – Gold prices rise in Euro terms.
https://youtu.be/DaOKkkEn-Ug

Financial Armageddon – The Final Days
https://youtu.be/CNl3RCMSpOo