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The social cost offoreign exchangereserves Dani Rodrik2006 год

The social cost of foreign exchange reserves
статья из журнала

Полный текстСтраница публикацииПубликация в OpenAlex
Аннотация: Abstract There has been a very rapid rise since the early 1990s in foreign reserves held by developing countries. These reserves have climbed to almost 30% of developing countries' GDP and 8 months of imports. Assuming reasonable spreads between the yield on reserve assets and the cost of foreign borrowing, the income loss to these countries amounts to close to 1% of GDP. Conditional on existing levels of short-term foreign borrowing, this does not seem too steep a price as an insurance premium against financial crises. But why developing countries have not tried harder to reduce short-term foreign liabilities in order to achieve the same level of liquidity (thereby paying a smaller cost in terms of reserve accumulation) remains an important puzzle. Keywords: Reserves,external debt Acknowledgment This paper was prepared for presentation at the American Economic Association meeting in Boston, January 2006. The author is grateful to Jeffrey Frankel and Ricardo Hausmann for helpful conversations, to Ken Froot, Bob Hormats, Rick Mishkin, Helene Rey, and Federico Sturzenegger for comments, and to Joe Stiglitz for his insistence that I write this paper. After this paper was prepared and presented, the author became aware of the closely related work by Baker & Walentin Citation(2001), which I am happy to acknowledge. Notes 1Mexico's Progresa program, for example, cost around 0.2% of GDP. 2Put differently, conditional on short-term liabilities being what they are, the optimal precautionary level of reserves is probably not too different from what it is currently (at least in aggregate for developing countries as a whole). Prasad & Rajan Citation(2005) have recently proposed the creation of a closed-end mutual fund that sells reserves to the domestic private sectors and invests the proceeds in foreign securities. As the authors make clear, however, this proposal applies only to reserves that exceed the desired precautionary levels. So it would not save nations any money as long as short-term liabilities keep desired precautionary reserve levels this high.
Год издания: 2006
Авторы: Dani Rodrik
Издательство: Taylor & Francis
Источник: International Economic Journal
Ключевые слова: Global Financial Crisis and Policies
Другие ссылки: International Economic Journal (HTML)
Library Union Catalog of Bavaria, Berlin and Brandenburg (B3Kat Repository) (HTML)
RePEc: Research Papers in Economics (HTML)
RePEc: Research Papers in Economics (HTML)