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Foreign Exchange Reserves (Reserve Foreign Currencies): Definitions and the Role of Foreign Exchange Reserves

Posted on: Januari 5, 2011

Reserves of gold stocks and foreign currencies held that any transaction or waku used for international payments (Nilawati, 2000:162).
Understanding Foreign Reserves or Reserve Currencies are foreign currency, for example, U.S. dollars held by government or central bank of each country that is generally used as international reserves (Lipsey, 1990: 499).
The position of a country’s foreign exchange reserves are usually declared safe if sufficient for import for a period of at least three months. If foreign exchange reserves held are not sufficient for three months of imports, then it is considered vulnerable. Thin supply of foreign currency a country can cause economic hardship for the country concerned.
Not only that country will find it difficult to import needed goods from abroad, but also memerosotkan credibility of its currency. Currency exchange rate in the foreign exchange market will depreciate. When the position of foreign exchange reserves continued to thin out and are running low, then it can happen rush of foreign currency in the country. Once so, it often happens that the relevant state government finally forced to make a devaluation (Dumairy, 1996: 107).
More and depletion of foreign reserves is also one of the causes of the high level of vulnerability of the Indonesian economy that is increasingly worsening national economic conditions. Indonesia’s foreign exchange reserves in 1998 reached 23.90 trillion rupiah, but because of the economic slump that amount, up to September 1999 around 16.01 billion U.S. dollars (Tulus Tambunan ,2000:152 TH-153).
According to Arief (1999:4), explained that the dependence on imports and high net transfer endanger the balance of payments current account deficit and capital deficit continued to rise. As a result of foreign exchange reserves became apparent, that many contain and even dominated by the foreign debt component. Foreign exchange reserves are no longer obtained from the export surplus, but foreign loans. Most of the foreign loans used to cover the current account deficit and to pay the principal repayment of foreign debt (Tulus Tambunan ,2000:152 TH-153)Foreign Exchange Reserves (Reserve Foreign Currencies): Definitions and the Role of Foreign Exchange Reserves


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