BPEA | Spring 2007

International Reserves in Emerging Market Countries: Too Much of a Good Thing?

Olivier Jeanne
Olivier Jeanne International Monetary Fund
discussants: Lawrence H. Summers and
Lawrence H. Summers Charles W. Eliot University Professor and President Emeritus - Harvard University
Joshua Aizenman

Spring 2007

WITH INTERNATIONAL reserves four times as large, in terms of their GDP,
as in the early 1990s, emerging market countries seem more protected
than ever against shocks to their current and capital accounts. Some have
argued that this buildup in reserves might be warranted as insurance
against the increased volatility of capital flows associated with financial
globalization.1 Others view this development as the unintended consequence
of large current account surpluses and suggest that the level of
international reserves has become excessive in many of these countries.2