Forex reserves include currency, bank notes, deposits, bonds, t-bills and other government securities held in another currency.

 Reserves are typically held in one or more reserve currency, mostly the US dollar, and to a lesser extent the Euro, the British pound sterling, and the Japanese yen.

It allows the central bank to back and purchase the domestic currency, which is considered a liability for the central bank as it prints the currency.

Forex reserves are used as a tool of monetary policy. The central bank influences the exchange value of the domestic currency by buying and selling foreign currency.