Final answer:
The Irish Central Bank's external reserve is critical for managing monetary policy and supporting the value of its currency. It consists of holding foreign currencies and assets that can be used to intervene in financial markets or meet financial obligations.
Step-by-step explanation:
The external reserve of a central bank is a function essential to monetary policy and international trade. For the Irish Central Bank, this involves holding sufficient reserves of foreign currencies, gold, and other assets, that are liquid and can be readily used to influence currency exchange rates, fulfill international obligations, or intervene in financial markets to maintain economic stability. For instance, if the Irish Central Bank needs to support the value of its currency, the euro, it could sell some of its reserves of the U.S. dollar or other currencies in the exchange rate markets. However, these activities must be carefully managed because large fluctuations in the monetary supply can lead to inflationary pressures or, conversely, if the reserves run low, the central bank may lose its ability to influence its currency's value effectively.