In July 1991, India began to dismantle its long-standing, highly restrictive import control regime and move toward a more open economy. How were policymakers able to dislodge and replace an entrenched system with powerful vested interests behind it? Standard explanations for policy change -...

Recently, there has been increasing research interest in the historical composition of central bank reserves. However, studies in this area is hindered by a lack of data, as such data spanning multiple centuries is only available for a small number of countries. This paper presents an empirical...

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...

This paper investigates the cyclicality of international reserves and their role in macroeconomic stabilization. We challenge two widely held assumptions: (1) central banks typically manage IR counter-cyclically—accumulating reserves during booms and drawing them down during downturns; and (2)...

This paper analyzes the unanalized topic in macroeconomic (monetary) politics, which is the emergence of the currency crisis as a consequence of targeting inflation. Many central banks adopted inflation targeting under a pressure from the IMF. Sudden depreciation of exchange rate which results...

This paper examines the role of foreign exchange reserve demand in mitigating inflationary pressures resulting from money supply growth in reserve currency issuing states (RCISs). Despite recurrent substantial monetary expansions in RCISs in response to recessions such as the 2000 Post-Dot Com...

The share of U.S. dollar assets in the official foreign exchange reserve portfolios of central banks is sometimes taken as an indicator of dollar status. We show that the observed decline in the aggregate share of U.S. dollar assets does not stem from a systematic shift in currency preferences...

This biennial report provides a quality review of the national balance of payments (b.o.p.), international investment position (i.i.p.) and international reserves template of the Eurosystem (international reserves), as well as the associated euro area aggregates.1 The report fulfils the formal...

This biennial report provides a quality review of the national balance of payments (b.o.p.), international investment position (i.i.p.) and international reserves template of the Eurosystem (international reserves), as well as the associated euro area aggregates.1 The report fulfils the formal...

Many developing countries are still grappling with the consequences of the pandemic and the associated high debt burdens while facing huge financing needs, inter alia related to climate change. In response, the International Monetary Fund (IMF) issued $650 billion in Special Drawing Rights...

The paper explores the interconnections between foreign capital flows and the exchange rate regime switching in developing countries. We formulate the exchange rate regime switching as annual time series of binary/ordered variables employing de facto classification of exchange rate arrangements...

This year’s report provides the external sector assessment of 30 of the world’s largest economies on the basis of their 2023 data. With tight monetary policy conditions in key advanced economies continuing in 2023, the US dollar remained strong in 2023 and early 2024 by historical standards,...

This policy brief presents a new comprehensive dataset on the currency compositions of international reserves of 64 economies from 1996 to 2023. The dataset contains country-specific shares in international reserves for the eight major international currencies, i.e. the United States Dollar...

What explains the US dollar's role in the global economy and the tensions affecting its likely persistence? Most analyses start from Triffin's dilemma, which accurately captured specific but partial tensions of a global monetary system based on essentially fixed exchange rates, gold backing for...

The rapid advent of digital money (DM) and assets raises questions about its implications for the functioning of the international monetary system (IMS). The low transaction costs of digital technologies, their accessibility and ease of automation, and their integration into existing digital...

Foreign exchange reserves (FER), especially dollar assets, are vital for a developing country to maintain economic stability, foster growth, and protect against unexpected amendments. In recent years, particularly since the onset of COVID-19, several emerging countries have experienced...

I propose a model of the reserve currency paradigm that centers on liquidity demand for safe assets. In global recessions, the demand for U.S. safe assets increases and raises their convenience yields, giving rise to stronger dollar and countercyclical seigniorage revenues. The seigniorage...

This study investigates the impact of economic sanctions on exchange rate volatility, with a specific focus on the role of foreign reserves in mitigating these effects across 21 countries from 2002 to 2022. Employing advanced econometric models, including Panel-Corrected Standard Errors (PCSE)...

As a result of the COVID crisis, managing the systemic risks that originate from sharp reversals or “sudden stops” in capital inflows, while reaping their benefits, needs a careful calibration of macroeconomic policy instruments. Using panel regressions with country-fixed effects, this paper...

The inclusion of Chinese renminbi in the Special Drawing Rights (SDR) lowers weightings of the other SDR currencies (EUR, JPY, and GBP) in the basket. Conventional wisdom suggests no material impact on those currencies. However, we find that, after the SDR adjustment, the liquidity of...

A B S T R A C TThe International Monetary Fund (IMF) created the Special Drawing Rights (SDRs) with 16-currencies in 1969 as a reserve asset and a unit of account. In 1980, the IMF modified the composition of and weights to calculate the exchange rate on 5-currency basket. This paper mainly...

Banks' ability to convert liquidity into lending depends crucially on the various regulatory constraints they face. This paper investigates the differential lending responses of banks with varying levels of reserves, and their impact on the real economy. The distribution of reserves within the...

Banks' ability to convert liquidity into lending depends crucially on the various regulatory constraints they face. This paper investigates the differential lending responses of banks with varying levels of reserves, and their impact on the real economy. The distribution of reserves within the...

The inclusion of Chinese renminbi in the Special Drawing Rights (SDR) lowers weightings of the other SDR currencies (EUR, JPY, and GBP) in the basket. Conventional wisdom suggests no material impact on those currencies. However, we find that, after the SDR adjustment, the liquidity of...

Central banks may shift their international reserve holdings in order to protect themselves ex-ante against the risk of financial sanctions by fiat reserve currency issuers. For example, from 2016 to 2021, countries facing a higher risk of US sanctions increased the gold share of their reserves...

Highly indebted developing economies commonly also hold large external reserves. This behavior seems puzzling given that governments borrow with an interest rate penalty to compensate lenders for default risk. Although reducing external debt to the same extent as international reserves would...