Official Reserves Account

The Official Reserves Account is the total reserves held by official monetary authorities within the country. These reserves are normally composed of the major currencies used in international trade and financial transactions (so-called “hard currencies” like the U.S. dollar, European euro, British pounds, and Japanese yen; gold; and special drawing right, SDRs).

The significance of official reserves depends generally on whether the country is operating under a fixed exchange rate regime or a floating exchange rate system. If a country’s currency is fixed, the government of the country officially declares that the currency is convertible into a fixed amount of some other currency.

For example, the South Korean won was fixed to the U.S. dollar for many years. It was the Korean government’s responsibility to maintain this rate, also called parity rate. If for some reason there was an excess supply of Korean won on the currency market, to prevent the value of the won from falling, the South Korean government had to support the won’s value by purchasing won on the open market ( by spending its hard reserves, its official reserves) until the excess supply was eliminated. Under a floating rate system, the Korean government possesses no such responsibility and the role of the official reserves diminished.

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