In order to prevent the depreciation of the home currency, privately determined excess demand for foreign exchange can be fulfilled by sales of the Central Bank’s Foreign exchange reserves.

If the home country of the Central Bank spends less abroad than it receives, then there will be privately determined surplus supply of foreign exchange.

The Central Bank absorbs the excess supply by accumulating foreign exchange reserves.

Changes in the Central Bank’s foreign exchange reserves are acknowledged in the official settlements balance.

Central Bank’s foreign exchange reserve losses are credits, and their reserve gains are debits, to the official settlements account of the home country.