LARGE HOARDING OF INTERNATIONAL RESERVES AND THE EMERGING GLOBAL ECONOMIC ARCHITECTURE

Joshua Aizenman ()

Manchester School, 2008, vol. 76, issue 5, pages 487-503

Abstract: The emerging financial configuration of developing countries has been growing managed exchange rate flexibility, greater monetary independence and deeper financial integration. Hoarding international reserves is a key ingredient enhancing the stability of this emerging configuration. International reserves help by providing self-insurance; mitigating real exchange rate effects of terms of trade shocks; and export promotion. Countries following an export-oriented growth strategy may end up with competitive hoarding, akin to competitive devaluations. The size of China and its lower sterilization costs suggest that China may be the winner of a hoarding game. Testing precautionary motives may be challenged by the 'peso problem'. Copyright © 2008 The Author. Journal compilation © 2008 Blackwell Publishing Ltd and The University of Manchester.

Date: 2008
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Working Paper: Large Hoarding of International Reserves and the Emerging Global Economic Architecture (2007)
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