The Social Cost of Foreign Exchange Reserves

Dani Rodrik

No 11952, NBER Working Papers from National Bureau of Economic Research, Inc

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 percent 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 percent 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.

JEL-codes: F3 (search for similar items in EconPapers)
Date: 2006-01
New Economics Papers: this item is included in nep-fmk and nep-ifn
Note: IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (294)

Published as Rodrik, Dani. “The Social Cost of Foreign Exchange Reserves.” International Economic Journal 20, 3 (September 2006).

Downloads: (external link)
http://www.nber.org/papers/w11952.pdf (application/pdf)

Related works:
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:nbr:nberwo:11952

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w11952

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().