We hear a great deal about foreign reserves, but what exactly are they, how do we earn them and why are they necessary? We will attempt to answer these questions in this article. In the interest of many of us who are not economists, we will sacrifice technical rigor and keep the economic argument simple.
Well, Fiji’s official foreign reserves are those assets that are held in foreign currencies by the Reserve Bank of Fiji (RBF). There are also unofficial reserves held outside the RBF and we will discuss this later on in this article.
How do we earn these foreign reserves? There are many sources. But we receive the bulk of these foreign currencies from those in other countries that buy our exports, from those that lend us money, from tourists and from those that send money to us in Fiji.
Under the Exchange Control Act, companies and people of Fiji that receive these foreign currencies, are required to bring these monies to Fiji and exchange them for Fiji dollars at licensed money exchange dealers like commercial banks. In turn, commercial banks are required to sell these foreign currencies to the Reserve Bank at the end of each working day. The RBF invests these foreign reserves in the major financial markets around the world.