Financial Versus Monetary Mercantilism-Long-run View of Large International Reserves Hoarding
The sizable hoarding of international reserves by several East Asian countries has been frequently attributed to a modern version of monetary mercantilism -- hoarding international reserves in order to improve competitiveness. From a long-run perspective, manufacturing exporters in East Asia adopted financial mercantilism -- subsidizing the cost of capital -- during decades of high growth. They switched to hoarding large international reserves when growth faltered, making it harder to disentangle the monetary mercantilism from precautionary response to the heritage of past financial mercantilism. Monetary mercantilism also lowers the cost of hoarding, but may be associated with negative externalities leading to competitive hoarding.
We appreciate comments by Gian Maria Milesi-Ferretti and Charles Wyplosz, but are solely responsible for all errors and misinterpretations. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the NBER, the IMF or IMF policy.
Joshua Aizenman & Jaewoo Lee, 2008. "Financial versus Monetary Mercantilism: Long-run View of Large International Reserves Hoarding," The World Economy, Blackwell Publishing, vol. 31(5), pages 593-611, 05. citation courtesy of