How should emerging economies manage their foreign exchange reserves?

Akash Gupta () and Rahul Agarwal

International Finance from EconWPA

Abstract: Asia has emerged as the balancing wheel of global finance. The countries of Asia now account for 70 per cent of global foreign exchange reserves, compared to only 30 percent in 1990 and 21 per cent in the early 1970s. This paper explores theoretical interpretations for the relatively high demand for international reserves by developing countries especially in the Far East. This paper provides calculations of the minimal necessary level of international reserves based on benchmarks proposed by Wijnholds and Kapteyn, as well as a discussion of costs of reserves’ holding. It therefore provides empirical proof that exchange reserve levels for many of the developing countries have far exceeded the desirable levels. Paper then discusses the steps that central banks in these developing countries can take for an effective reserve management.

Keywords: Foreign exchange; emerging economies; reserves; reserve level; east asia (search for similar items in EconPapers)
JEL-codes: F31 F30 E00 E58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ifn
Date: 2004-01-24
Note: Type of Document - Acrobat PDF; prepared on WinXP; pages: 10; figures: there are figures within the document

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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpif:0401005

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