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

Comments

1. 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
2. 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
3. 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?
4. According to some in this community, the only future currencies one will have to be concerned with are gold, silver, bullets, and women.
5. 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?
6. 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..
7. What would make a better reserve currency......the US dollar, the SDR, gold or Bitcoin?
8. 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.
9. 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.
10. Thank You illuminati, was informative and helpful
11. I appreciate the educational videos related to metals.
12. Last day for the competition entries. 18th December - come on people get your entries in on the competition videos.
13. Gold and silver are the reserves to have, currencies are just a paper.
14. Much maligned George Soros? Deservedly so!
15. Thanks for the "illumination". A thoughtful and easy to follow explanation.
16. 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 .
17. (0)
18. excellent
19. 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?
20. congrats on 8k subs and a awesome video