Cost of foreign reserve accumulation in emerging market and developing economies
Bibliographic Data
| ID | 6449066 |
|---|---|
| Authors | Gouda Abdel Khalek (Cairo University), Amany Rizk (Cairo University) |
| Year | 2023 |
| Volume | 10 |
| Issue | 2 |
| Pages | 112-133 |
| Publication date | 2023-02-24 |
| Peer Reviewed | Yes |
| Open Access | Yes |
| Type | ARTICLE |
| Venue | Seikei ronsō/Review of economics and political science (JOURNAL) |
| Journal identifiers | ISSN: 0387-3285 • E-ISSN: 2631-3561 |
| Publisher | Emerald (PUBLISHER) |
| DOI | 10.1108/reps-12-2022-0108 |
| OpenAlex | W4321769823 |
| Language | EN |
| References cited | 26 |
Purpose This paper aims to obtain a recent estimate of the cost of precautionary foreign reserve accumulation that emerging market and developing economies (EMDEs) had to endure to protect themselves against the risks of financial globalization. In addition, the study estimates the cost of excess reserves in emerging market economies (EMEs) using various reserve adequacy indicators that reflect potential sources of foreign exchange drains and vulnerability in EMEs' balance of payments. Design/methodology/approach This paper begins by explaining the accumulation of foreign reserves in EMDEs as a self-protection strategy against the risks of financial globalization. Next, it sheds light on the different types of economic costs of foreign reserve accumulation. Finally, it estimates the cost of foreign reserve accumulation in EMEs during the period (1990–2018) and in EMDEs during the period (1990–2015) due to data availability. Findings Results indicate that the cost of accumulating foreign reserves as a self-protection strategy in EMDEs and EMEs' was huge compared to their development financing needs. Applying various reserve adequacy measures demonstrates that many of the EMEs were holding inadequate precautionary reserves in 2018. Actually, this reflects the significant increase in external short term debt that many of the EMEs have witnessed since the eruption of the global financial crisis (2008). Thus increasing reserves in EMEs with weak reserve buffers and higher external debt is critical as they are more vulnerable to external shocks and capital flow reversals. Also given the estimated huge costs of accumulating foreign reserves, EMDEs should accompany it by other complementary self-protection policies and liquidity management policies to free up resources for productive investment. Originality/value The study contributes to the literature by estimating the cost of precautionary foreign reserve accumulation imposed on EMDEs during an extended period of time that covers a decade after the onset of the global financial crisis. Also to the authors' knowledge, this is the first study that estimates the cost of excess reserves in EMEs using various reserve adequacy indicators including the International Monetary Fund (IMF) assessing reserve adequacy (ARA) approach
Balance of payments · Business · Central bank · Currency · Debt · Economics · Emerging markets · External debt · Foreign-exchange reserves · International economics · Monetary economics · Monetary policy · Natural resource economics · Reserve requirement · Vulnerability (computing · Banking stability, regulation, efficiency · Global Financial Crisis and Policies · State Capitalism and Financial Governance · Finance
Capital Mobility and Stabilization Policy Under Fixed and Flexible Exchange Rates
Making the Poor Pay for the Rich
International Reserves, Effective Demand and Growth
What matters for financial development? Capital controls, institutions, and interactions
Precautionary demand for foreign assets in Sudden Stop economies
The Optimal Level of International Reserves for Emerging Market Countries
| Citation velocity | historical |
|---|---|
| Highly cited | No |