Why do countries hold so much international reserves? Global reserve holdings (excluding gold) were equivalent to 17 weeks of imports at the end of 1999. That is almost double what they were at the end of 1960 and about 20 percent higher than they were at the start of the 1990s. In this paper we...

This paper provides indirect tests of the hypothesis that exchange rate movements may be largely coterminus with changes in preferences for holding claims on different countries. It is argued that changes in country preferences will be reflected systematically in the price of gold and, hence,...