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Published: January 30, 2025 8:00 AM IST
By Joy Pillai | Edited by Joy Pillai
New York: It is believed that the higher a country’s foreign exchange reserves, the stronger its economic health. Such a country is considered among the global economic powerhouses. In the current scenario, China is considered one of the world’s major economic powerhouses, capable of influencing global markets. The Dragon has a total of USD 3.2 trillion in foreign exchange reserves, an amount equivalent to India’s entire economy, which currently stands at USD 3.5 trillion. As of January 17, India’s total foreign exchange reserves were recorded at USD 623.9 billion, one-fifth of China’s foreign exchange reserves.
With USD1.2 trillion in foreign reserves, almost double of India, Japan is the second on the list. Switzerland is in the third position with around USD950 billion. India ranks fourth. Interestingly, despite being the most sought-after currency, the United States holds only around USD250 billion in foreign reserves, which is a surprising situation for a country that considers itself a global superpower.
Countries need foreign exchange reserves because we all know that money is required for trade. But any country’s currency is only valid within its borders. For international trade, countries need a widely acceptable currency which is currently USD. Notably, countries prefer the currency of the world’s most dominant economy, as it carries the least risk of devaluation and US dollar is the most preferable one, followed by Euro, the British Pound, and gold.
Despite China’s emergence as an economic powerhouse, the United States continues to be the largest economy globally. It retains its position of global influence, with trillions of dollars in circulation within its economy. To illustrate, if the Indian Rupee were strong enough to be widely accepted for reserves and international trade, India would not need to accumulate its own currency. With trillions of rupees already in the banking system, the government could easily engage in trade without needing to hold reserves. This situation mirrors that of the U.S., which, instead of accumulating large amounts of its own currency, maintains gold and other foreign currencies as part of its foreign exchange reserves, valued at around USD250 billion.
• Donald Trump has resumed his role as U.S. President, potentially escalating tensions with China.
• Trump plans to implement several restrictions on Chinese imports to counter its market influence.
• China remains competitive in global markets with low-cost products, challenging U.S. pricing strategies.
• A comprehensive ban on Chinese goods is unlikely due to the higher costs of American-made products.
• China is increasingly conducting trade in its own currency, reflecting its growing economic power.
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