Change in reserves
A key element in international economic and financial analysis is the amount of international liquidity or “reserves” held by the central authority of individual countries.Reserves include monetary gold, special drawing rights (SDRs), the reserve position in the Fund and foreign exchange.Monetary gold is gold held by the authorities as a financial asset.SDRs are reserves created by the IMF as bookkeeping entries and credited to the accounts of IMF member countries according to their established IMF quotas.A decision to create SDRs requires the approval of a majority of the member countries holding 85% of the weighted voting power of the IMF.Once created they may be used in the settlement of balance of payments imbalances among countries participating in the Special Drawing Account administered by the IMF.More will be said about SDRs and the IMF when we look at the organization of the international financial system.The reserve position in the Fund is basically the difference between the member’s quota plus other claims on the Fund less the Fund’s holdings of that member’s currency.Foreign exchange is by far the largest component of total international liquidity.It includes monetary authorities’ claims on non-residents in the form of bank deposits, Treasury bills, short-term and long-term government securities, and other claims usable in the event of balance of payments need, including non-marketable claims arising from inter-central bank and inter-government arrangements, without regard to whether the claim is denominated in the currency of the debtors or the creditors.
The evolution of international reserves in balance of payments accounting is recorded in the account called “change in reserves”.This account differs from the other accounts in the balance of payments insofar as it is the only account that records transactions with residents as well as non-residents.