Foreign currency reserves
Information on what our foreign currency reserves are made up of and why we hold them.
What are foreign reserves?
Foreign reserves are assets that we hold in currencies other than the New Zealand dollar (NZD), which allows us to buy or sell the New Zealand dollar in exchange for these foreign reserves.
We hold foreign reserves in currencies such as United States dollars or Euros which can be sold quickly, if needed. It is standard practice for central banks globally to hold foreign reserves, so that they can support their respective currencies and economies, when needed.
Why do we hold and manage foreign reserves?
To be ready and able to transact in the foreign exchange market
A well-functioning foreign exchange market is critical to New Zealand’s economy. Many people — including exporters, importers, borrowers and investors — rely on these markets to exchange NZD for foreign currency. By holding and using foreign reserves when needed, we can make sure there is global confidence in the NZD and wider New Zealand economy.
To help us meet our financial stability, monetary policy and other central bank objectives
It is important for us to hold foreign reserves in advance of any crisis. Having foreign reserves act as a kind of insurance against events that might have an impact on the NZD foreign exchange market.
In a crisis, we may intervene in the NZD foreign exchange market for financial stability reasons to help keep the market functioning during a period of severe market dysfunction. This allows foreign exchange market transactions to continue, even if there has been a crisis.
Intervening in foreign exchange markets for monetary policy purposes is rare and not intended to maintain a specific level of the exchange rate. Monetary policy interventions are consistent with New Zealand’s floating exchange rate regime and aimed at smoothing material fluctuations in the NZD. If these fluctuations were unaddressed, it could place undue pressure on certain parts of the economy and affect inflation or employment outcomes.