The Social Cost of Foreign Exchange Reserves

Dani Rodrik

No 5483, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: There has been a very rapid rise since the early 1990s in foreign reserves held by developing countries. These reserves have climbed to almost 30% of developing countries' GDP and 8 months of imports. Assuming reasonable spreads between the yield on reserve assets and the cost of foreign borrowing, the income loss to these countries amounts to close to 1% of GDP. Conditional on existing levels of short-term foreign borrowing, this does not represent too steep a price as an insurance premium against financial crises. But why developing countries have not tried harder to reduce short-term foreign liabilities in order to achieve the same level of liquidity (thereby paying a smaller cost in terms of reserve accumulation) remains an important puzzle.

Keywords: Emerging markets; Financial crises (search for similar items in EconPapers)
JEL-codes: F4 (search for similar items in EconPapers)
Date: 2006-01
New Economics Papers: this item is included in nep-dev, nep-fmk and nep-ifn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (283)

Downloads: (external link)
https://cepr.org/publications/DP5483 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: The social cost of foreign exchange reserves (2006)
Working Paper: The Social Cost of Foreign Exchange Reserves (2006)
Working Paper: The Social Cost of Foreign Exchange Reserves (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:5483

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP5483

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().