Purpose
In a flexible exchange rate system, official international reserve assets allow a central bank to purchase the domestic currency, which is considered a liability for the central bank (since it prints the money or fiat currency as IOUs). This action can stabilize the value of the domestic currency.
Central banks throughout the world have sometimes cooperated in buying and selling official international reserves to attempt to influence exchange rates. This coordinated strategy was used to replace pound sterling with US dollar as the world reference currency during the 20th century. The lack of such international cooperation is also a big concern for the replacement of US Dollar in this role of reference currency in foreign exchange reserves.
Read more about this topic: Foreign-exchange Reserves
Famous quotes containing the word purpose:
“The purpose of playing, whose end, both at the first and now,
was and is, to hold as ‘twere the mirror up to nature: to show
virtue her feature, scorn her own image, and the very age and
body of the time his form and pressure.”
—William Shakespeare (1564–1616)
“Whoever considers morality the main objective of human existence, seems to me like a person who defines the purpose of a clock as not going wrong. The first objective for a clock, is, however, that it does run; not going wrong is an additional regulative function. If not a watch’s greatest accomplishment were not going wrong, unwound watches might be the best.”
—Franz Grillparzer (1791–1872)
“Science and art, or by the same token, poetry and prose differ from one another like a journey and an excursion. The purpose of the journey is its goal, the purpose of an excursion is the process.”
—Franz Grillparzer (1791–1872)