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Touching the Brakes after the Crash: A Historical View of Reserve Accumulation and Financial Integration

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  • Schularick Moritz

    () (Free University of Berlin)

Abstract

Over the past decade emerging markets accumulated foreign currency reserves to insure against the risks of global financial integration. They were wise to do so. Countries with large reserves have fared better in the crisis of 2008/09. Yet collectively reserve accumulation had unintended consequences. It has contributed to the build-up of global imbalances and financial distortions that helped create the macroeconomic backdrop for the crisis. This article looks at recent patterns of global capital flows from the perspective of economic history, trying to set events in a longer term perspective. It argues that the crisis could mark the end of the latest attempt to manage the financial stability risks of capital market integration. Emerging markets will not consent to facing global financial flows without large foreign currency reserves, but a return to currency interventions and reserve accumulation would be equally problematic. Historically, the ups and downs of global capital market integration have been driven by varying assessments of the benefits of capital mobility. With the recent crisis the time for such a reassessment might have come.

Suggested Citation

  • Schularick Moritz, 2010. "Touching the Brakes after the Crash: A Historical View of Reserve Accumulation and Financial Integration," Global Economy Journal, De Gruyter, vol. 9(4), pages 1-13, January.
  • Handle: RePEc:bpj:glecon:v:9:y:2010:i:4:n:5
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    References listed on IDEAS

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    1. Hume, Michael & Sentance, Andrew, 2009. "The global credit boom: Challenges for macroeconomics and policy," Journal of International Money and Finance, Elsevier, vol. 28(8), pages 1426-1461, December.
    2. Ben S. Bernanke, 2007. "Global imbalances: recent developments and prospects," Speech 317, Board of Governors of the Federal Reserve System (U.S.).
    3. Michael Dooley & David Folkerts-Landau & Peter Garber, 2009. "Bretton Woods Ii Still Defines The International Monetary System," Pacific Economic Review, Wiley Blackwell, vol. 14(3), pages 297-311, August.
    4. repec:fip:fedgsq:y:2007:i:sep11 is not listed on IDEAS
    5. Highfill Jannett, 2008. "The Economic Crisis as of December 2008: The Global Economy Journal Weighs In," Global Economy Journal, De Gruyter, vol. 8(4), pages 1-7, December.
    6. HyunSong Shin, 2009. "Securitisation and Financial Stability," Economic Journal, Royal Economic Society, vol. 119(536), pages 309-332, March.
    7. Silvia John E & Iqbal Azhar, 2009. "Thinking Outside the Cycle," Global Economy Journal, De Gruyter, vol. 9(3), pages 1-12, September.
    8. Niall Ferguson & Moritz Schularick, 2007. "'Chimerica' and the Global Asset Market Boom," International Finance, Wiley Blackwell, vol. 10(3), pages 215-239, December.
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    Cited by:

    1. Shrestha, Prakash Kumar, 2012. "Banking systems, central banks and international reserve accumulation in East Asian economies," Economics Discussion Papers 2012-48, Kiel Institute for the World Economy (IfW).

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