Assume that the United States decided to hold more yuan in the federal reserve. Which processes does that involve? I assume there is some sort of electronic exchange between the two central banks where dollars are exchanged for yuan. What happens physically? I assume that the Fed will only need to hold a portion (say, 10%) of the reserves as currency, and the other 90% will be just based on the credibility of the bank. Does that mean that the currency worth 10% of the exchange needs to be loaded in a special plane and flown from China to the US and vice versa? How often do those sorts of plane trips happen?

  • $\begingroup$ I just read in the news that on 7 March 2017, R200 million was being flown out of South Africa. The story didn't say why. $\endgroup$ – ahorn Mar 20 '17 at 6:04

Typically foreign reserves will just be assets denominated in a foreign currency, most importantly government debt. Another popular reserve asset are IMF special drawing rights, which are convertible into currencies of member countries. I don't think there is any amount of physical cash currency in international reserves. You can see the makeup of US reserves here: https://www.treasury.gov/resource-center/data-chart-center/IR-Position/Pages/12302016.aspx

If the US treasury would decide to increase it's Yuan holdings, it will just buy bonds that pay are traded and denominated in Yuan.

| improve this answer | |

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.