Title: Effects of foreign reserve stock in Asian countries

Authors: Yutaka Kurihara

Addresses: Faculty of Economics, Aichi University, 1-1 Machihata-cho Toyohashi-shi Aichi-ken, 441-8522 Japan

Abstract: Large accumulations of foreign reserves have been ongoing recently in Asian countries. Policymakers seem to have decided to increase high levels of foreign reserves for self-insurance or precautionary purposes against exchange rate movements. Other countries have accumulated foreign reserves to achieve macroeconomic stability. This paper analyses the recent extent of sterilisation in the foreign exchange markets and the degree of capital mobility in Asian countries. Although capital mobility surged, the de facto degree declined after the crisis with evidence of sterilisation of foreign reserve accumulations. However, past reserve accumulation has not been a major source of excessive liquidity creation and could indicate worry is uncertain in Asian economies.

Keywords: Asia; central banks; exchange rate; foreign reserves; sterilisation; foreign exchange markets; capital mobility; Asian economies.

DOI: 10.1504/GBER.2011.039192

Global Business and Economics Review, 2011 Vol.13 No.1, pp.84 - 92

Available online: 25 Mar 2011 *

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