Question

Explain international reserves. Why countries trade their securities internationally and also comment why and how China accumulated over $3 trillion of international reserves?

Answer 1

International reserves

are any kind of reserve funds, which central banks can pass among themselves internationally and which are managed by central banks. These are an acceptable form of payment among central banks of countries.

Countries trade their securities internationally to attract investment or paying previous dues of international trade or in the form of foreign institutions investment. Countries sold their securities to take part in share of any countries company or psu.

China accumulated this reserve by buying securities of different countries and this type of reserve important in doing international trade with different countries in their own currency and reduce dependence on major currency like dollar, Euro and pound etc. This type of reserve is helpful in any crisis conditions or balance of payment Crisis of own self or for any friend countries. This type reserve also showing repaying capabilities of any country. China accumulated this reserve to keep their own currency undervalued by keeping foreign securitie which are helpful in their export.