Saturday, August 07, 2010

Accumulation of International Reserves in Middle East and East Asian Countries

Having realized the importance of increased liquidity as a form of (self) protection against crises, many developing countries (i.e. Middle East and East Asian) started to accelerate their accumulation of international reserves. Chart 1shows the increase of such accumulation.

Having international reserves enables economies to adopt slower speeds of adjustment when confronted with balance of payment crises, contributing to their perceived creditworthiness and hence reducing the occurrence of crises: higher reserves mean that future out may be avoided since future current account deficits can be better financed, and the effects of capital outflows can be neutralized by running down reserves... Read more>>

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