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Bibliography

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1

This paper was prepared by a team comprising R. Duttagupta, R. Goyal, P. Khandelwal, I. Mateos y Lago, A. Piris, and N. Raman (all SPR). Substantive contributions were provided by: M. Chamon, C. Crowe, A. Ghosh, J. Ostry, and R. Ranciere (all RES); S. Arslanalp, U. Das, K. Habermeier, E. Kazarian, A. Kokenyne, M. Papaioannou, J. Park, and J. Pihlman (all MCM); C. Beaumont, H. Hatanpaa, T. Krueger, and M. Rossi (all FIN); and R. Leckow, N. Rendak, G. Rosenberg, and R. Weeks-Brown (all LEG). A. Galicia-Escotto, R. Heath, R. Kozlow, and J. Joisce (all STA) also contributed. Inputs from R. Cooper and comments from B. Eichengreen, D. Rodrik, and K. Rogoff are gratefully acknowledged. They bear no responsibility for any flaws in the paper.

2

As noted in previous Board papers on the Fund’s mandate (see IMF, 2010b), a number of important questions would need to be resolved before this provision could be used to promote collaboration among Fund members in this area, and not all the ideas floated in this paper could be implemented on its basis. It is beyond the scope of this paper to determine to what extent the ideas mooted in this paper could be implemented under the present international legal framework either within or outside the Fund.

3

This paper does not consider whether these reserve levels are appropriate or not for individual countries, but rather the aggregate effects of reserves growth. Ghosh et al., (2009) discussed the potential need for EMs to hold higher reserves than traditional metrics suggested considering the impacts of financial crises in advanced economies.

5

Cheung and Qian (2009) develop a model and find empirical evidence of interdependence in holdings of reserves for ten East Asian economies.

6

Aizenman and Sun (2009) find a “fear of losing reserves” among emerging markets during the crisis, with countries sensitive to financial factors even less willing to reduce reserves.

7

The “Triffin dilemma” (first posited in 1959 in two papers published by the Banca Nazionale del Lavoro) is sometimes invoked to suggest that accommodating demand for reserves would lead to dollar debt creation that could reach magnitudes that challenge sustainability. However, Triffin was principally concerned with the dollar’s convertibility into gold, supplies of which were growing only slowly. With the dollar no longer tied to gold, demand for reserve assets can in principle be met entirely through the capital account (simultaneous creation of claims and obligations with non-residents), with a balanced current account. That does not mean an unsustainable current account, or debt burden, could not arise.

8

Gambacorta (2009) finds an increase in risk-taking by banks in low-interest rate environments. Caballero and Krishnamurthy (2009) and Brender and Pisani (2010) argue that foreign demand for riskless assets increases financial fragility in the U.S. and globally. While these effects may be more subdued immediately following the crisis, they would likely reassert themselves over the longer run.

9

Other authors find different magnitudes (on either side). McKinsey Global Institute (2009) has a useful summary table and references, showing impacts ranging from 30 to 200 basis points for 2006, with net foreign purchases of about 3 percent of GDP.

10

See Ostry and others (2010) for a discussion of the role of capital controls at a country-level.

11

This includes, for instance, consistency with countries’ commitments under the GATS, the OECD Code of Liberalization of Capital Movements, the UE law, and bilateral trade and investment protection agreements.

12

Currently, reporting of currency composition is voluntary for IMF members. The Fund’s Currency Composition of Official Foreign Exchange Reserves (COFER) database, which publishes aggregate information on the composition of total reserves, covers only about two-thirds of total global reserves.

Reserve Accumulation and International Monetary Stability
Author: International Monetary Fund