Foreign Currency Reserves and a Country Economy:

Introduction:

          Foreign Reserves or the foreign currency reserves are the very important for every country financial strength and for its currency in the international market. Some time the foreign reserve are making problem. That situation shows that how much the flexibility has a country to overcome its financial crises The Nations Economies based on many factors. We cannot judge it easily with two or three factors. That’s the reason for a sovereign country economy the independent institutions and professionals always use many techniques and factors these techniques and factors helps us to view the economy picture of a nation. The common factors and techniques are GDP, CPI, Foreign Currency Reserve level, Economic Growth factors and many more like it. The Independent institution in the world like the credit banks for example the IMF, World Bank, Asian development bank and many more like it always make their focus on these factors and especially on the Foreign Currency Reserves.

 Present Countries Reserve situation:

According to the first quarter of the FY2017 China placed at first position in this list which has the 30,053,567 million US$ in shape of foreign reserves. Saudi Arabia is on number 4^th at this list, India is at number 8^th, Japan at number 2^nd and United States of America is placed on number 16^th. That figures and statistics show that how much the foreign currency reserves or sometimes the gold reserves a country have in this state bank or state owned deposits.

The Upper written line has a main question and that’s the reason which forced me to write about this topic because many people have the question in their mind that United States is a very powerful country and has the influence over the many countries in all over the world how it adjustable to them to be at number 16^th in the foreign currency reserve list. Same thing like with Pakistan a very progressive country which has the very important geo political location with the silk route and in the foreign currency reserve list placed at number 57^th position.

Impact of Foreign Currency Reserves over Country Economy:

The answer for this question is as follows, a foreign currency reserve helps a country economy to be flexible for the uncertainties and suddenly unwanted trends in the economic cycles. That’s the reason the countries which has the very strong human resource and natural resources they have the to keep the intermediate level reserves. But India has a very strong situation here the country is too big and its natural resources and human resource index is too high as compare to the other countries of the world. That’s the advantage for India they spend less foreign currency and their exports trends are good with the other regional countries.

Low Reserve Countries Economy and Reasons:

The progressive countries like Pakistan economy which is very unpredictable due to the economic, political uncertainties. That’s the reason the country has a very influence role in the world economy and now it is in the top 23 to 27 economies list but the spending of the country in terms of dept payments to the IMF and other international banks and the economic and political conditions of the country not allow the country to keep that much high reserves so they have just 21,358 million reserves in terms of US $.There are many reasons for less reserves of a country held. The reasons are as follows.

1.     The huge amount of dept payments to the foreign and local banks with interest.

2.     The spending over development and progressive works in the country.

3.     The spending over long term wars.

4.     Huge difference between the import and exports.

5.     Huge variance in trade deficit and exports revenue.

6.     The Country fixed assets levels.

7.     Variance in Cash Flows. Less in flow and huge out flow of currency make weak the country economy

8.     The spending over the disasters and subsidies to the general public in case of high sensitive level of emergencies.  

Reasons in case of US and Pakistan:

That’s the reason America, Pakistan which has the very good human and natural resources. But due to the WOT “War on Terror” involvement. Less production or exports and huge trade deficits and lack of the foreign market access brings the country where the inflation rate inside the country is too much high and government use the liquid reserves to overcome that high inflation with some subsidies.

That’s mean that the foreign currency reserves are a mean of economic condition forecasting. The countries who have a big number of foreign reserves can meet their short term goals very easily.