Foreign-exchange reserves (also called Forex reserves or FX reserves) is money or other assets held by a central bank or other monetary authority so that it can pay its liabilities if needed, such as the currency issued by the central bank, as well as the various bank reserves deposited with the central bank by the government and other financial institutions. Reserves are held in one or more reserve currencies, mostly the United States dollar and to a lesser extent the Euro.
Foreign exchange reserves minus external debt
In a strict sense, foreign-exchange reserves should only include foreign banknotes, foreign bank deposits, foreign treasury bills, and short and long-term foreign government securities. However, the term in popular usage also adds gold reserves, special drawing rights (SDRs), and International Monetary Fund (IMF) reserve positions. This broader figure is more readily available, but it is more accurately termed official international reserves or international reserves.
Foreign-exchange reserves are called reserve assets in the balance of payments and are located in the capital account. Hence, they are usually an important part of the international investment position of a country. The reserves are labeled as reserve assets under assets by functional category. In terms of financial assets classifications, the reserve assets can be classified as Gold bullion, Unallocated gold accounts, Special drawing rights, currency, Reserve position in the IMF, interbank position, other transferable deposits, other deposits, debt securities, loans, equity (listed and unlisted), investment fund shares and financial derivatives, such as forward contracts and options. There is no counterpart for reserve assets in liabilities of the International Investment Position. Usually, when the monetary authority of a country has some kind of liability, this will be included in other categories, such as Other Investments. In the Central Bank's Balance Sheet, foreign exchange reserves are assets, along with domestic credit.
The State Bank of Pakistan (SBP) reported a dip of $230.9mn in its foreign exchange reserves, because of the external debt servicing and other expenditure, ARY News reported.
In a data unconfined by the central bank in its weekly report, the reserves held by the SBP stood at $7.4bn whereas the Forex reserves obtainable with the commercial banks were at $6.54bn level.
Earlier on January 3, the SBP in its weekly had also reported refuse of $170mn in the foreign exchange reserves, principally because of payments in lieu of external debts and other payments counting imports.
Pakistan is stressed to meet its debt-service necessities and is facing a balance-of-payments crisis which has resulted in a rapid decline of the reserves.
However, the situation is predictable to recover soon as the United Arab Emirates (UAE) has finalized a financial enclose for Pakistan worth $6.2bn, while a $1bn tranche from Saudi Arabia is likely to be released in the month of February.
In another development on January 2, China confirmed the Financial Times story that said the Asian giant would soon supply Pakistan with $2bn in financial aid to support its economy.
