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Too Much of a Good Thing? The Adequacy of International Reserves in the Aftermath of Crises

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  • Graham Bird
  • Ramkishen Rajan

Abstract

This paper has a number of purposes. First, it revisits the older theory of reserve adequacy and optimality to see whether this can still be used and perhaps strengthened in ways that would inform the current debate. Second, it explores the connection between reserve adequacy and currency crisis in the light of recent experience and empirical research. Third, it critically investigates alternative rule‐of‐thumb measures of reserve adequacy. Fourth, and drawing on the foregoing analysis, it examines the extent to which crisis countries should seek to replenish and build up their international reserves in the post‐crisis period. Additional owned reserves represent a guaranteed and unconditional source of liquidity; is this what is needed?

Suggested Citation

  • Graham Bird & Ramkishen Rajan, 2003. "Too Much of a Good Thing? The Adequacy of International Reserves in the Aftermath of Crises," The World Economy, Wiley Blackwell, vol. 26(6), pages 873-891, June.
    • Handle: RePEc:bla:worlde:v:26:y:2003:i:6:p:873-891
    DOI: 10.1111/1467-9701.00552
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