International reserves before and after the Global Crisis: Is there no end to hoarding?
Joshua Aizenman, Yin-Wong Cheung , Hiro Ito 13 September 2014
In the aftermath of the global financial crisis new patterns of reserve hoarding have emerged. This column identifies structural changes in international reserve accumulation. Emerging markets with higher savings rates tend to use higher buffers of reserves, partially accounting for the higher levels of reserves in east Asia compared to Latin America. While there is no end in sight for reserve hoarding, some of the newly identified factors may mitigate eventual reserve accumulation.
After the financial crises of the late 1990s many emerging economies recognised the benefits of self-insurance against the volatility associated with financial globalisation, increasing their ratio of international reserves to GDP substantially.1 The evidence in Bussière at al. (2014) supports this view, finding that countries with more reserves relative to short-term debt fared better during the Global Financial Crisis.
Global crisis International finance
global financial crisis, international reserves, reserve hoarding
For a few dollars more: Reserves and growth in times of crises
Matthieu Bussière, Gong Cheng, Menzie D. Chinn , Noëmie Lisack 16 March 2014
The financial crisis that swept the global economy at the end of 2008 provides a natural experiment to test the proposition that international reserves are useful during crises. This column presents cross-country evidence based on a panel of 112 emerging and developing countries. Countries with more reserves relative to short-term debt fared better.
In the decade preceding the 2008 global financial crisis (GFC), emerging market economies accumulated large stocks of international reserves (see Figure 1). The unprecedented pace of reserve accumulation was at least partly a response to the lessons drawn from previous financial crises, which predominantly affected emerging markets. Most research on emerging-market crises suggests that countries with an insufficient level of reserves, measured against appropriately chosen benchmarks, suffered more from crises in the 1990s.1
financial crises, international reserves, capital controls
Reserve accumulation and easy money helped to cause the subprime crisis: A conjecture in search of a theory
Guillermo Calvo 27 October 2009
How did turmoil in the US subprime mortgage market ignite a global crisis? This column explains how emerging markets’ voracious appetite for international reserves coupled with record-low US policy interest rates and lax financial regulation to produce the large-scale creation of quasi-money subject to self-fulfilling-expectations runs. The theory suggests significant changes in Fed and regulatory policy are needed.
A view that is gaining popularity as one of the fundamental explanations for the current crisis is that emerging markets’ voracious appetite for international reserves coupled with record-low US policy interest rates and lax financial regulation to produce a frantic “search for yield,” the creation of fragile financial instruments, and occasionally outright fraud. For example see Henry Paulson’s discussion quoted in Guta (2009).
Global crisis International finance
international reserves, financial regulation, global crisis
International reserve losses in the 2008-9 crisis: From “fear of floating” to the “fear of losing international reserves”?
Joshua Aizenman, Yi Sun 15 October 2009
Emerging markets accumulated massive international reserves over the last decade. This column explores how they used them to respond to the crisis. Economies that accumulated reserves for trade concerns drew them down in response to the shock, while economies driven by financial factors showed a “fear of depleting”.
Investigating the patterns of exchange rates, interest rates, and international reserves during 1970-1999, Calvo and Reinhart (2002) inferred the prevalence of the “fear of floating”. Countries that say they allow their exchange rate to float mostly do not. Instead, frequently the authorities are attempting to stabilise the exchange rate through direct intervention in the foreign exchange market and in open market operations.
reserves, international reserves, fear of floating, global crisis