Foreign Exchange Reserves
Definition
According to the International Monetary Fund, foreign exchange reserves are defined in the Balance of Payments manual (5th edition) as
“Those external assets that are readily available to and controlled by monetary authorities for direct financing of payments imbalances, for indirectly regulating the magnitudes of imbalances through intervention in exchange markets to affect the currency exchange rate, and/or for other purposes”
Purposes for Holding Official Foreign Reserves of Thailand
1. To fulfill the monetary and exchange rate policies
2. To store of nation’s wealth
3. To give credibility to foreign investors
4. To back the banknotes in use
In order to achieve all the aforementioned objectives, The Bank of Thailand manages the official reserves according to the following 3 guiding principles as follows
1. Security –preservation of reserves values
2. Liquidity- able to meet the objectives of exchange rate and monetary policies
3. Returns- to maximize the returns within the given guidelines
Sources of Official Foreign Reserves
1. Balance of payment Surplus: The Balance of Payments consists of the current account and the capital account. Under the managed floating exchange rate, surpluses will lead to increases in foreign exchange holdings when the central bank intervenes by buying the foreign currency.
2. Returns from management of official reserves: Returns from interest payments and the change in principal values of assets
