In this article, we will be taking a look at the 20 countries with the largest foreign reserves in 2023. To skip our detailed analysis, you can go directly to see the 5 countries with the largest foreign reserves in 2023.
Foreign reserves refer to reserves which can include cash in foreign currencies and various other assets as well including gold, generally held by central banks of nations. There are various reasons that countries have foreign reserves including ensuring that their own currency value remains constant at a fixed rate. For example, China has pegged its currency, the yuan to the U.S. dollar, the most valuable currency in the world, and has been so since the end of World War 2. It then buys and stockpiles U.S. dollars to increase the value of the U.S. dollar against the yuan which in turn makes exports cheaper and more competitive. Similarly, other countries such as Japan also buy U.S. dollars despite implementing a floating exchange rate, which ensures that the yen remains cheaper as compared to the dollar, and hence allows its exports to be more competitive too.
Not having significant foreign reserves can come back to haunt a country especially in times of an economic crisis, as witnessed by Sri Lanka. Between 2019 to 2022, Sri Lanka’s foreign reserves fell by nearly 99% and resulted in the country having to default on its sovereign debt for the first time, while inflation increased to nearly 40% in 2022. This is one of the reasons why the countries with the largest foreign reserves in 2023 are considered to be more secure, as their foreign reserves can ensure the ability to pay back international obligations even amid an economic crisis remains strong. At the same time, lack of foreign reserves in a crisis can see the value of local currencies plummet, deepening a crisis.
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A good example of this is Pakistan’s economic crisis, which is currently ongoing. Excessive borrowings combined with low exports and a turbulent political situation which resulted in the country’s elected Prime Minister being overthrown in 2022 have all come together to create significant doubts regarding Pakistan’s ability to pay back its debt, and its currency has been devalued by over 100% in just the last five years. On 26th January 2023 alone, the Pakistani rupee dropped by nearly 10% in a single decade as its forex reserves fell from $3.68 billion to under $1 billion. Unsurprisingly, Pakistan isn’t anywhere near the countries with the highest foreign reserves in 2023.
While many countries hold and denominate their foreign reserves in the U.S. dollar because of its undisputed position as the global leading currency, many countries are aiming to move away, especially as several developing countries are gaining greater influence because of their increasing contribution to the global economy. In fact, global foreign reserves fell by 10% as countries scrambled to counter the impact of a rising U.S. dollar. BRICS, an organization which includes Brazil, Russia, India, China and South Africa, was established in its current form in 2010, and is home to some of the biggest developing and semi-developed economies to facilitate trade and be free from Western influence. Reuters reports on August 24, 2023, that Brazil’s president suggested using a common currency to engage in trade between the nations so as to prevent dollar shocks from impacting their operations. Meanwhile, China’s yuan is another currency which has been in the running to become the world’s leading currency as China is widely expected to become the world’s largest economy by 2075, and is easily among the countries with the largest foreign reserves in the world. However, the Chinese yuan has suffered as a result of China’s economic stagnation resulting in the country imposing measures such as purchases of more than $50 million requiring approval from the Bank of China.
The International Monetary Fund, also has a reserve currency list, called the Special Drawing Rights (SDR). The SDR itself is not a currency but a combination of a basket of some of the top currencies in the world including USD, euro, China’s renminbi, pound sterling and the Japanese yen. The SDR is regarded as an asset which can be exchanged for other currencies when needed, and only IMF members, and the IMF itself can hold SDRs. Unsurprisingly, all the countries which form the weightage of SDRs are also among the list of countries with the largest foreign reserves in 2023.
Methodology
To determine the countries with the largest foreign reserves in 2023 by country, we determined the holdings of each country via information from their central bank. Where the foreign reserves by country have been denominated in…
Read More: 20 Countries With The Largest Foreign Reserves in 2023