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How should emerging economies manage their foreign exchange reserves?


Author Info

  • Akash Gupta

    (Indian School of Business)

  • Rahul Agarwal

    (Indian School of Business)


Asia has emerged as the balancing wheel of global finance. The countries of Asia now account for 70 per cent of global foreign exchange reserves, compared to only 30 percent in 1990 and 21 per cent in the early 1970s. This paper explores theoretical interpretations for the relatively high demand for international reserves by developing countries especially in the Far East. This paper provides calculations of the minimal necessary level of international reserves based on benchmarks proposed by Wijnholds and Kapteyn, as well as a discussion of costs of reserves’ holding. It therefore provides empirical proof that exchange reserve levels for many of the developing countries have far exceeded the desirable levels. Paper then discusses the steps that central banks in these developing countries can take for an effective reserve management.

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Bibliographic Info

Paper provided by EconWPA in its series International Finance with number 0401005.

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Length: 10 pages
Date of creation: 24 Jan 2004
Date of revision:
Handle: RePEc:wpa:wuwpif:0401005

Note: Type of Document - Acrobat PDF; prepared on WinXP; pages: 10; figures: there are figures within the document
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Keywords: Foreign exchange ; emerging economies; reserves; reserve level; east asia;

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Cited by:
  1. Kasman, Adnan & Ayhan, Duygu, 2008. "Foreign exchange reserves and exchange rates in Turkey: Structural breaks, unit roots and cointegration," Economic Modelling, Elsevier, vol. 25(1), pages 83-92, January.


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