Holding and managing foreign reserves helps RBNZ to meet monetary policy, financial stability and other central bank objectives. It means that we're ready and able to transact in the foreign exchange market and ensures global confidence in the New Zealand economy. The RBNZ board and the Minister of Finance have agreed on a foreign reserves management and coordination framework, as required by our new legislation.
The foreign exchange market is what all our exporters, importers, investors and borrowers use to exchange New Zealand dollars for foreign currency. Foreign reserves are safe assets held in currencies other than our own, like the US dollar or the Euro. We're able to buy or sell the New Zealand dollar in exchange for these foreign assets or reserves. Holding foreign reserves is like insurance against events that might impact on the New Zealand dollar market.
New Zealand has a floating exchange rate regime, which means RBNZ does not seek to maintain a certain level for the New Zealand dollar. Intervention for financial stability would aim to help keep the market functioning during a period of severe New Zealand dollar market dysfunction. Intervention for monetary policy reasons would aim to smooth fluctuations in the New Zealand dollar, which if left unaddressed, could effect inflation or employment outcomes.
To find out more about foreign reserves, visit rbnz.govt.nz.
