China has the largest foreign currency reserves - and that is how it stabilises its currency

Thanks to its export-based economy, China holds the largest foreign currency reserves in the world. The Chinese central bank has a foreign currency reserve of a whopping $3,140 billion, according to the data maintained by the International Monetary Fund.

Japan and Switzerland with $1,210 billion and $770 billion, respectively have second and third largest reserves in the world.

India, with $400 billion of foreign currency reserves (March-end data; the latest RBI figures put it at $385 billion) stands at the sixth position.

Other countries which feature in top 10 are oil-rich Saudi Arabia ($480 billion), financial hub Hong Kong ($430 billion), South Korea ($390 billion), Russia ($370 billion), Brazil ($360 billion) and Singapore ($290 billion).

One of the reasons for governments to stack up on foreign currencies, such as the dollar or euro, is that these stocks can be sold to stabilise their own currency if needed.

There are numerous instances when the Reserve Bank of India or the Chinese central bank has stepped in selling dollars to stabilise the local currencies.

Moreover, the foreign currency reserves are also used to pay for the imports.

At the beginning of the 1990s, the Indian foreign reserves depleted to such a level that Indian government had the currencies just to pay for three weeks worth of imports. The depletion of reserves also led to a sharp devaluation of Indian rupees.

Amid the rising crude oil rate, interestingly, the Indian rupees is also sliding as of now, hovering between Rs 68-69 level, after touching its lowest ever value.