NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Social Cost of Foreign Exchange Reserves

Dani Rodrik

NBER Working Paper No. 11952
Issued in January 2006
NBER Program(s):   IFM

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.

download in pdf format
   (117 K)

email paper

This paper is available as PDF (117 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w11952

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

Users who downloaded this paper also downloaded these:
Dominguez, Hashimoto, and Ito w17362 International Reserves and the Global Financial Crisis
Aizenman and Lee w11366 International Reserves: Precautionary versus Mercantilist Views, Theory and Evidence
Dominguez, Fatum, and Vacek w16044 Does Foreign Exchange Reserve Decumulation Lead to Currency Appreciation?
Aizenman w12734 International Reserves Management and the Current Account
Dooley, Folkerts-Landau, and Garber w9971 An Essay on the Revived Bretton Woods System
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us