Is the Accumulation of International Reserves Good for Development?
Posted: 10 Sep 2008
Date Written: September 2008
International reserves accumulation has been the preferred policy recently adopted by developing economies to achieve financial stability. The aim of this policy is to increase liquidity and thus reduce the risk of suffering a speculative attack. The main concern expressed in the literature has been related to its cost. Most of the studies conclude that the opportunity cost of international reserves accumulation is around 1% of GDP. However, these studies have not analysed whether this strategy is, or could be, more broadly supportive of development, an issue that must be of central interest for developing economies. The aim of this paper is to show that the stockpiling of international reserves is not optimal for developmental purposes and that there exist alternative policies that can be applied to achieve financial stability, policy autonomy and a better performance in terms of development.
Keywords: International reserves, Financial stability, Speculative attacks, Capital management
JEL Classification: O11, O16, E12, E63, F41
Suggested Citation: Suggested Citation