Central Banks usually have to hold reserves of other countries currencies, or more generally a basket of reserves that it can use with another Central Bank for

Central Banks usually have to hold reserves of other countries currencies, or more generally a basket of reserves that it can use with another Central Bank for the purposes of trade or moving capital beyond the border. Say I buy a container of iron ore from Australia from the US, the process needs money to flow to Australia. In this flow the Federal Reserve would provide to the Reserve Bank of Australia (RBA) some of the assets in this currency basket to back its claim, it simply says the RBA is owed that (and subsequently the RBA can use that against USD trade, or use that against some other trading partner). So this way that the person I buy ore from in Australia has his credit in his account backed by something intrinsic (owed to him by the RBA, owed to the RBA by the Fed). No money has really flowed between countries, just the Fed owes the RBA assets in this currency basket as a result. This communication is done using the Bank for International Settlements which allows these reserves to be exchanged between other countries when they trade amongst each other. Hence it's important the basket contain assets that are universally acceptable and can store value. It used to be Special Drawing Rights, and before that Gold. The Federal Reserve's gold hoard is also amongst this basket. The terminology remains from the basic function of exchange accounting under the Bretton woods system, in principle using fiat instead of Gold. This method was devised to avoid countries having to ship gold to each other. They could simply owe it to another Central Bank and trade against that. The bonds are stored in a different form as part of their monetary policy, the functions in this sort of basket is part of the Fed's function with international settlements.