Do countries by physical assets from other countries like gold? Or like like say for example if Australia wanted to buy more USD for its reserve, would it buy US gold? Or like bills? Or is just data? Thanks!
Btw accidentally deleted my last post
In: Economics
How does a country obtain foreign currency reserves?
Foreign currency reserves accumulate through exports. If a company in country A exports goods to country B, then the banks in country A eventually accumulate reserves in country B currency. Conversely, imports from country B work to deplete this reserve. So a country running a generally positive trade balance naturally builds foreign currency reserves.
Open market action. The central bank can directly go to the foreign currency market and purchases reserves using their local currency. This tends to depreciate the value of the local currency relative to the other currency.
Attract foreign investment. Making your country a favored place to invest (or raising interest rates) means investors will buy your currency to purchase domestic investment assets and this increases reserves.
Borrow foreign currency. Essentially go to the big banks (international or offshore) and get a loan in that foreign currency.
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