Foreign exchange reserves
When countries trade, invest, or manage their economies, one important factor quietly working in the background is foreign exchange reserves . These reserves play a huge role in a nation’s financial stability, its ability to trade internationally, and even in how its citizens feel the effects of inflation or currency changes. In simple terms, foreign exchange reserves are like a safety net that countries hold to protect themselves from unexpected financial shocks. What Are Foreign Exchange Reserves? Foreign exchange reserves are assets held by a country’s central bank, usually in the form of foreign currencies, gold, special drawing rights (SDRs), or reserves at the International Monetary Fund (IMF). Think of it as the “emergency savings account” for an entire nation. For example, if Nigeria wants to buy crude oil machinery from the United States, it needs U.S. dollars to pay for it. If the country doesn’t have enough dollars in circulation, the central bank...