Self owned reserve refers to the foreign exchange reserve formed by the surplus under current account. The ultimate ownership of the own reserves belongs to the local monetary authority, so it can be freely controlled.
Sources of own reserves
The main source of self owned reserves is the current account surplus earned by providing goods and services to residents of other countries, and also includes foreign exchange reserves obtained through unilateral transfer and special drawing rights allocation.
Composition of self owned reserves
Self owned reserves, namely international reserves, mainly include a country’s monetary gold reserves, foreign exchange reserves, reserve status in the International Monetary Fund, and the balance of special drawing rights in the International Monetary Fund.
1. Gold reserves
2. Foreign exchange reserves foreign exchange reserves are the main body of international reserves.
3. Reserve position in IMF 4. Special drawing rights
How Free Reserves Work
Under fractional reserve banking, commercial banks can only hold a limited amount of their total funds in a liquid form at any given time. In other words, not all deposits are kept on hand in cash; most are lent out or otherwise invested. U.S. federal law requires banks to hold a certain portion of their funds in cash vaults or in Federal Reserve Bank accounts. These reserve requirements vary based on the size of the bank. Typically, banks were required to hold anywhere between 3% and 10% of their money in reserve. For example, banks with less than $16 million had no reserve requirements, banks with between $16.9 million and $127.5 million were required to hold only 3% in reserve, and banks that had over $127.5 million were required to hold 10% in reserve.
