Data analyzed by Finbold indicates that only six countries cumulatively hold $7.5 trillion in U.S. dollar foreign reserves accounting for 51.57% of all holdings by 193 countries. The total holdings by all countries stand at $14.54 trillion of Q1 2021.
China tops the list with its U.S. dollar reserves standing at $3.3 trillion. The value is over two and a half times more than second-placed Japan at $1.3 trillion. Switzerland is third with forex reserves of $1.08 trillion. India ranks fourth with reserves of $582.27 billion, followed by Russia at $580.9 billion. Lastly, Taiwan is sixth, with reserves worth $543.33 billion.
Asia’s trade imbalance reflects on the region’s reserve holdings
The report explains possible reasons why Asian countries dominate the top six list. According to the research report: “From the top six countries, Asia accounts for half due to its position in the global economy. As a region, Asia sells more goods and services to the rest of the world than buying.”
“The trade imbalance results in an inflow of foreign exchange that is responsible for robust reserves. Furthermore, a significant and persistent surplus is reinforced by capital inflows hence the build of foreign reserves. The reserves also cement the fact that Asia relies on an export-led economic growth model.”
China also leads Asia with record reserves in the wake of the trade war with the United States and the coronavirus pandemic. The reserves have helped the government create more room to adjust its position amid economic corrections.
By holding significant forex reserves, countries can offer foreign investors confidence that a government can meet its debt obligations.