Foreign reserve accumulation in Asia: Can it be sustained?
Asian governments have been accumulating foreign reserves (largely United States securities) on a large scale, as a result of maintaining fixed exchange rates or attempting to limit currency appreciation in the face of a weakening US dollar. The effects on Asia to date appear relatively benign. More expansionary monetary conditions have helped some economies that were experiencing actual or near-deflation not long ago. Monetary authorities have been reasonably successful in maintaining monetary control through sterilisation operations without pushing up interest rates. This situation is unlikely to be sustainable in the long term, as sterilisation on the recent scale cannot be maintained indefinitely. Ultimately, policy-makers cannot fix the real exchange rate. If economic fundamentals require a real appreciation, this will eventually occur through either nominal appreciation or higher inflation.
Volume (Year): (2004)
Issue (Month): 3 (November)
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- Ronald McKinnon & Gunther Schnabl, 2004.
"The East Asian Dollar Standard, Fear of Floating, and Original Sin,"
Review of Development Economics,
Wiley Blackwell, vol. 8(3), pages 331-360, 08.
- Ronald McKinnon & Gunther Schnabl, 2003. "The East Asian Dollar Standard, Fear of Floating, and Original Sin," Working Papers 03001, Stanford University, Department of Economics.
- Ronald McKinnon & Gunther Schnabl, 2003. "The East Asian Dollar Standard, Fear of Floating, and Original Sin," Working Papers 112003, Hong Kong Institute for Monetary Research.
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