At present this gold is believed to be stored at Brussels and The Hague respectively, neither of which is very well placed for its rapid evacuation in an emergency. The Belgian government rushed to ship the gold to a safe place: Dakar , the capital of Senegal , then part of the French colonial empire. After the Germans occupied Belgium and France in , they demanded the Belgian gold reserve back.
In , Vichy French officials arranged the transport of 4, boxes with tons of gold to officials of the German Reichsbank. Since early , the gold holdings of the IMF have been constant at The IMF regularly maintains statistics of national assets as reported by various countries. On 17 July , China announced that it increased its gold reserves by about 57 percent from 1, to 1, metric tons, while disclosing its official gold reserves for the first time in six years.
The gold listed for each of the countries in the table may not be physically stored in the country listed, as central banks generally have not allowed independent audits of their reserves. In practice, few central banks or currency regimes operate on such a simplistic level, and numerous other factors domestic demand, production and productivity , imports and exports, relative prices of goods and services, etc.
Besides that, the hypothesis that the world economy operates under perfect capital mobility is clearly flawed. As a consequence, even those central banks that strictly limit foreign exchange interventions often recognize that currency markets can be volatile and may intervene to counter disruptive short-term movements that may include speculative attacks. Thus, intervention does not mean that they are defending a specific exchange rate level. Hence, the higher the reserves, the higher is the capacity of the central bank to smooth the volatility of the Balance of Payments and assure consumption smoothing in the long term.
After the end of the Bretton Woods system in the early s, many countries adopted flexible exchange rates. In theory reserves are not needed under this type of exchange rate arrangement; thus the expected trend should be a decline in foreign exchange reserves.
However, the opposite happened and foreign reserves present a strong upward trend. Reserves grew more than gross domestic product GDP and imports in many countries. The only ratio that is relatively stable is foreign reserves over M2. Ratios relating reserves to other external sector variables are popular among credit risk agencies and international organizations to assess the external vulnerability of a country. For example, Article IV of  uses total external debt to gross international reserves, gross international reserves in months of prospective goods and nonfactor services imports to broad money , broad money to short-term external debt, and short-term external debt to short-term external debt on residual maturity basis plus current account deficit.
Therefore, countries with similar characteristics accumulate reserves to avoid negative assessment by the financial market, especially when compared to members of a peer group. Reserves are used as savings for potential times of crises, especially balance of payments crises. Original fears were related to the current account, but this gradually changed to also include financial account needs.
If a specific country is suffering from a balance of payments crisis, it would be able to borrow from the IMF. However, the process of obtaining resources from the Fund is not automatic, which can cause problematic delays especially when markets are stressed. Therefore, the fund only serves as a provider of resources for longer term adjustments. Also, when the crisis is generalized, the resources of the IMF could prove insufficient.
After the crisis, the members of the Fund had to approve a capital increase, since its resources were strained. Most countries engage in international trade , so to ensure no interruption, reserves are important. A rule usually followed by central banks is to hold the equivalency of at least three months of imports in foreign currency. Also, an increase in reserves occurred when commercial openness increased part of the process known as globalization.
Reserve accumulation was faster than that which would be explained by trade, since the ratio has increased to several months of imports. Furthermore, the external trade factor explains why the ratio of reserves in months of imports is closely watched by credit risk agencies.
The opening of a financial account of the balance of payments has been important during the last decade. Hence, financial flows such as direct investment and portfolio investment became more important. Usually financial flows are more volatile that enforce the necessity of higher reserves.
Moreover, holding reserves, as a consequence of the increasing of financial flows, is known as Guidotti—Greenspan rule that states a country should hold liquid reserves equal to their foreign liabilities coming due within a year. Reserve accumulation can be an instrument to interfere with the exchange rate. Hence, commercial distortions such as subsidies and taxes are strongly discouraged. However, there is no global framework to regulate financial flows. As an example of regional framework, members of the European Union are prohibited from introducing capital controls , except in an extraordinary situation.
Some economists are trying to explain this behavior. Usually, the explanation is based on a sophisticated variation of mercantilism , such as to protect the take-off in the tradable sector of an economy, by avoiding the real exchange rate appreciation that would naturally arise from this process.
One attempt  uses a standard model of open economy intertemporal consumption to show that it is possible to replicate a tariff on imports or a subsidy on exports by closing the current account and accumulating reserves.
Another  is more related to the economic growth literature. The argument is that the tradable sector of an economy is more capital intense than the non-tradable sector. The private sector invests too little in capital, since it fails to understand the social gains of a higher capital ratio given by externalities like improvements in human capital, higher competition, technological spillovers and increasing returns to scale.
The government could improve the equilibrium by imposing subsidies and tariffs , but the hypothesis is that the government is unable to distinguish between good investment opportunities and rent seeking schemes. Thus, reserves accumulation would correspond to a loan to foreigners to purchase a quantity of tradable goods from the economy. In this case, the real exchange rate would depreciate and the growth rate would increase.
In some cases, this could improve welfare, since the higher growth rate would compensate the loss of the tradable goods that could be consumed or invested.
In this context, foreigners have the role to choose only the useful tradable goods sectors. Reserve accumulation can be seen as a way of "forced savings". The government, by closing the financial account, would force the private sector to buy domestic debt in the lack of better alternatives. With these resources, the government buys foreign assets. Thus, the government coordinates the savings accumulation in the form of reserves.
Sovereign wealth funds are examples of governments that try to save the windfall of booming exports as long-term assets to be used when the source of the windfall is extinguished.
There are costs in maintaining large currency reserves. Price fluctuations in exchange markets result in gains and losses in the purchasing power of reserves.
In addition to fluctuations in exchange rates, the purchasing power of fiat money decreases constantly due to devaluation through inflation. Therefore, a central bank must continually increase the amount of its reserves to maintain the same power to manipulate exchange rates. Reserves of foreign currency provide a small return in interest.
However, this may be less than the reduction in purchasing power of that currency over the same period of time due to inflation, effectively resulting in a negative return known as the "quasi-fiscal cost". In addition, large currency reserves could have been invested in higher yielding assets. The respondents - all investors in the CFD field - rated their satisfaction with their brokers. Again FXFlat took a clear leading position.
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