Is the Accumulation of International Reserves Good for Development?

Posted: 10 Sep 2008

See all articles by Moritz Cruz

Moritz Cruz

Universidad Nacional Autonoma de Mexico- Instituto de Investigaciones Economicas

Bernard Walters

University of Manchester - School of Social Sciences

Date Written: September 2008

Abstract

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

Cruz, Moritz and Walters, Bernard, Is the Accumulation of International Reserves Good for Development? (September 2008). Cambridge Journal of Economics, Vol. 32, No. 5, pp. 665-681, 2008, Available at SSRN: https://ssrn.com/abstract=1265478 or http://dx.doi.org/10.1093/cje/ben028

Moritz Cruz (Contact Author)

Universidad Nacional Autonoma de Mexico- Instituto de Investigaciones Economicas ( email )

Circuito Mario de la Cueva s/n
CU
Mexico, 14510
Mexico

Bernard Walters

University of Manchester - School of Social Sciences ( email )

Oxford Road
Manchester, M13 9PL
United Kingdom

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