Reserved assets are also called foreign exchange reserves or official reserves. Are financial assets held by countries central banks. Those assets can be
Foreign currency (USD, EUR, JPY, GBP)
Gold reserves
Special drawing right from IMF and reserve position in the IMF
Foreign government bond or other highly liquid assets
What are they used for ?
In a simpler form reserve are used to defend a country currency it is used in two ways
- Defend currency: central banks use reserve assets to influence and stabilize their local currency rate for example if the local currency is depreciating too fast probably due to high demand of foreign currency in the country.
the central bank of that country can sell foreign reserves like USD creating excess foreign currency in the country and buy back its own currency which will make its currency a little bit scarce this action will make the value of its currency go up.
- Currency manipulation: countries currency can be tied to another country's currency.
Or a country can manipulate its exchange rate to reduce the value or weaken its local currency by simply buying foreign currency this increases the supply of local currency in the market and brings down the value of the currency
This action mostly benefits export based economies as it makes exporting their local goods cheaper
countries like China has been doing this.