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How should emerging economies manage their foreign exchange reserves?


  • 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.

Suggested Citation

  • Akash Gupta & Rahul Agarwal, 2004. "How should emerging economies manage their foreign exchange reserves?," International Finance 0401005, EconWPA.
  • 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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    References listed on IDEAS

    1. Clark, Peter B, 1970. "Optimum International Reserves and the Speed of Adjustment," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 356-376, March-Apr.
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    Cited by:

    1. Ä°mre ERSOY, 2011. "On Reserve Hoarding In Emes: The Case Of Turkey," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 6(3(17)/ Fa), pages 230-243.
    2. 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.

    More about this item


    Foreign exchange ; emerging economies; reserves; reserve level; east asia;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F30 - International Economics - - International Finance - - - General
    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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