Many central banks, especially in developing countries, intervene in the foreign exchange markets to build up reserves or to supply domestic banks with them. The aim is often to stabilize their own exchange rate. Interventions via the FX market can also often be observed in the highly developed countries.

Dear Emin Huseynzade,

In principle, it is all central banks that, to a greater or lesser extent, collect deposits from originating commercial banks to a certain extent as a percentage of the amounts committed to commercial banks for lending and other banking products generating high credit risk. for the following reasons, as mandatory and specific reserves:

1. managing systemic credit risk for the banking sector as a whole.

2. Control of credit risk in individual commercial banks.

Besides, for systemic security reasons, it is also important to maintain a certain amount of foreign exchange reserves at the central bank in order to limit the scale of foreign exchange risk and to stabilise the exchange rate of the domestic currency in the situation of increasing the scale of instability in the international foreign exchange markets and other segments of the financial markets. This issue is correlated with factors such as:

- the extent to which specific foreign currencies are used in economic transactions, in the economic activities of companies, enterprises and by citizens,

- the extent of volatility of the exchange rate of the national currency, the level of vulnerability of the national currency to various macroeconomic factors and the impact factors of the global economy,

- the level of use of the national currency by domestic and foreign financial institutions in speculative transactions on international foreign exchange markets,

- the economic, productive potential of the domestic economy and its size in relation to other economies with economic agents carrying out international trade with the country's companies, cross-border flows of productive factors and financial capital transfers,

- the scale of the use of the domestic currency for the bank's monetary policy, with possible informal correlation with the government's fiscal policy in the provision of additional quantities of money to the economy without being covered by emerging products and services.

- the scale of the central bank's speculative financial transactions in international financial markets using currencies, precious bullion reserves and securities.

Therefore, the issue of commercial banks' deposits with the central bank is a key factor in the security of the financial system. On the other hand, the amount of foreign exchange reserves at the central bank is subject to various factors and also plays an important role in ensuring the safety of the financial system and stabilising the exchange rate and/or maintaining the exchange rate of the national currency at a certain level. This issue is also linked to the central bank's monetary policy, management of foreign exchange risk and counteracting the risk of currency crises. However, there are exceptional situations, e.g. when the central bank, informally cooperating with the government, directly buys treasury bonds in order to provide the government with additional money, which through specially created government funds is extra-budgetarily used to develop social policy or interventionist government programmes of entrepreneurship activation. An exceptional situation is also that the central bank conducts speculative transactions on international currency markets with the use of foreign exchange reserves in order to, for example, lower the exchange rate of the national currency, which may help in rolling over debt instruments responsible for public debt and in order to generate extraordinary profits by the central bank, which are transferred to the treasury. countries. Such unusual situations occur, for example, in the central bank of the country in which I operate.

Best regards,

Dariusz Prokopowicz

Hi Dariusz, Thank you for your reply but question was not quite that. My question was do central banks attract foreign currency deposits from domestic financial and non-financial organizations?