Why do countries need “foreign currency” reserves? Why not just buy things with their own currency?

Question

I was reading about Bolivia running out of US Dollars and the government is shitting their pants.

Why is this a problem?

I don’t have any US dollars and I’m fine. If I buy something from an American website, I don’t need US dollars. I only have Euros in my bank account. I will use my Euro bank card to buy something from the American website.

Same if I buy something from a Japanese website. I don’t need Japanese Yen. I just use my bank card.

I can survive my entire life without worrying about having “foreign reserves”.

So why do countries like Bolivia need foreign reserves to buy some oil or whatever?

In: Economics

Answer 1

For a transaction to take place (normally), there needs to be a WILLING buyer and seller.

A company in one country cannot force a company in another country to accept their currency in exchange for goods. It is really as simple as that.

When you go on a sales website, all this is hidden from the consumer. You purchase something from the US with Euro (in your mind) but the actual transaction goes from your bank account to the website operator’s bank account in Euro. The website operator converts the Euro to USD, usually sending it to their USD bank account in the US. Then the US bank sends the dollar equivalent to the seller’s bank account.

There is even MORE going on behind the scenes. In any case, the central bank manages reserves because it has to be ready to step in, if needed, to provide exchange to their banks. The domestic bank supports domestic importers and exporters (and tourists etc) with foreign exchange services.