Monetary Reserve

A nation's assets held in a foreign currency and/or commodities like gold and silver. Monetary reserves are used to back up the national currency and to provide a cushion for executing central banking functions like adding to the money supply and settling foreign exchange contracts in local currencies. 



|||When the United States was using the Bretton Woods inspired monetary system, only gold was used as a monetary reserve, a structural problem that most saw as a roadblock to future economic growth. The U.S. dollar is now a fiat currency (not pegged to gold reserves), and even though the Federal Reserve Banks keep a large amount of reserves, most of what is held today is used for settling short-term currency contracts and for liquidity activities for the domestic economy.