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Large Hoarding Of International Reserves And The Emerging Global Economic Architecture

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  • JOSHUA AIZENMAN

Abstract

The emerging financial configuration of developing countries has been growing managed exchange rate flexibility, greater monetary independence and deeper financial integration. Hoarding international reserves is a key ingredient enhancing the stability of this emerging configuration. International reserves help by providing self‐insurance; mitigating real exchange rate effects of terms of trade shocks; and export promotion. Countries following an export‐oriented growth strategy may end up with competitive hoarding, akin to competitive devaluations. The size of China and its lower sterilization costs suggest that China may be the winner of a hoarding game. Testing precautionary motives may be challenged by the ‘peso problem’.

Suggested Citation

  • Joshua Aizenman, 2008. "Large Hoarding Of International Reserves And The Emerging Global Economic Architecture," Manchester School, University of Manchester, vol. 76(5), pages 487-503, September.
  • Handle: RePEc:bla:manchs:v:76:y:2008:i:5:p:487-503
    DOI: 10.1111/j.1467-9957.2008.01072.x
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    More about this item

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F1 - International Economics - - Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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