Posted in Finance, Accounting and Economics Terms, Total Reads: 337
Definition: International Reserves
Reserves generally refers to the collection of funds or for anything that matters which is saved because that might be used in cases of emergency situations. International Reserves refers to the various different kinds of funds that can be transferred between the central banks of two different countries or between more than two different countries. Central banks refers to the financial institution that has the responsibility to maintain the financial structure and the stability of the financial system in a given country.
They can increase or decrease various important rates that affect the lending rates for various loan. Also, they keep a check on the inflation and also keep a close eye on the growth that the country is growing with and supplements with various steps like rate cuts for important ratios like credit reserve ratio etc. Central banks can be either be government controlled or an independent body. Research has shown that it should be an independent for better objective and quick decision making, hence every country is moving on to make it an independent body if it is not. Examples of independent central banks are the Reserve bank of India, Federal Reserve Bank of the United states etc.
International reserves generally form the acceptable way of payment between various different central banks of different countries. The international reserves is generally in two forms, mainly in some currency (mostly in dollars or euros) or gold. Having international reserves is important in today’s world of globalization where each currency affects other currency in the world. International reserves are also used by countries to back the liabilities which can be in any form, for example as simple as any bank deposit in any local currency. The international reserves that the central bank of any country has is open for all to see and is generally looked as the strength of any given country’s economy.