TY  - JOUR
AU  - Rodrik,Dani
TI  - The Social Cost of Foreign Exchange Reserves
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11952
PY  - 2006
Y2  - January 2006
UR  - http://www.nber.org/papers/w11952
L1  - http://www.nber.org/papers/w11952.pdf
N1  - Author contact info:
Dani Rodrik
John F. Kennedy School of Government
Harvard University
79 JFK Street
Cambridge, MA 02138
Tel: 617/495-9454
Fax: 617/496-5747
E-Mail: dani_rodrik@harvard.edu
AB  - 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.
ER  -