George Richard P733_ Allen

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How do central banks hedge reserves against currency risk?

Central banks manage trillions in foreign reserves, balancing USD, EUR, JPY, and gold. To reduce risk, they diversify holdings and use swaps with other central banks. For example, China’s PBoC holds reserves across multiple currencies to stabilize RMB. Benefits: reduced exposure to single-currency shocks. Risks: geopolitical tensions may freeze reserves, as seen with Russia’s USD reserves in 2022. Central bank reserve management demonstrates forex at the highest level: currencies are not just tools of trade, but also instruments of power and policy.