be included in other categories, such as Other Investments. On a central bank's Balance sheet, foreign exchange reserves are assets, along with domestic credit. Purpose Typically, one of the critical functions of a country's central bank is reserve management, to ensure that the central bank has control over adequate foreign assets to meet national objectives. These objectives may include: supporting and maintaining confidence in the national monetary and exchange rate management policies, limiting external vulnerability to shocks during times of crisis or when access to borrowing is curtailed, and in doing so - providing a level of confidence to markets, demonstrating backing for the domestic currency, assisting the government to meet its foreign exchange needs and external debt obligations, and maintaining a reserve for potential national disasters or emergencies. Reserves assets allow a central bank to purchase the domestic currency, which is considered a liability for the central bank (since it prints the money or fiat currency as IOUs). Thus, the quantity of foreign exchange reserves can change as a central bank implements monetary policy, but this dynamic should be analyzed generally in the context of the level of capital mobility, the exchange rate regime and other factors. This is known as trilemma or impossible trinity. Hence, in a world of perfect capital mobility, a country with fixed exchange rate would not be able to execute an independent monetary policy. A central bank which chooses to implement a fixed exchange rate policy may face a situation where supply and demand would tend to push the value of the currency lower or higher (an increase in demand for the currency would tend to push its value higher, and a decrease lower) and thus the central bank would have to use reserves to maintain its fixed exchange rate. Under perfect capital mobility, the change in reserves is a temporary measure, since the fixed exchange rate attaches the domestic monetary policy to that of the country of the base currency. Hence, in the long term, the monetary policy has to be adjusted in order to be compatible with that of the country of the base currency. Without that, the country will experience outflows or inflows of capital. Fixed pegs were usually used as a form of monetary policy, since attaching the domestic currency to a currency of a country with lower levels of inflation should usually assure convergence of prices. In a pure