International reserves are the means of settling international debts.Under
the gold standard,gold was the major component of international
reserves.Following World War II, we had a gold exchange standard in
which international reserves included both gold and a reserve currency,
the U.S. dollar.The reserve currency country was to hold gold as backing
for the out standing balances of the currency held by foreigners.These
foreign holders of the currency were then free to convert the currency
into gold if they wished.However,as we observed with the dollar,
once the convertibility of the currency becomes suspect,or once large
amounts of the currency are presented for gold,the system tends to
fall apart.