The Size of Foreign Exchange Reserves

23 Pages Posted: 13 Dec 2019

See all articles by Yavuz Arslan

Yavuz Arslan

Bank for International Settlements (BIS)

Carlos Cantú

Bank for International Settlements (BIS) - Representative Office for the Americas

Date Written: October 31, 2019


This paper assesses the determinants of foreign exchange (FX) reserves in emerging market economies (EMEs). First, it reviews the drivers behind reserve accumulation and the metrics used to evaluate reserve adequacy. We argue that precautionary motives, at least until early 2000s, were the main drivers of reserves accumulation for most of the countries. However, more recently, goals related to monetary and exchange rate policies also play significant roles. Next, the paper evaluates the costs of holding reserves, both at the domestic and global levels. In particular, we highlight the low rate of return on reserves assets and valuation risks that EMEs face. We also discuss the possible role of higher reserves in reducing US long term interest rates. Finally, the paper discusses some supportive and alternative policies such as macroprudential policies and swap agreements, which could alleviate reliance on reserve accumulation.

Full Publication: Reserve Management and FX Intervention

Keywords: Foreign exchange reserves, reserve adequacy, precautionary demand, export competitiveness

JEL Classification: F3, F31, F36, F41

Suggested Citation

Arslan, Yavuz and Cantú García, Carlos, The Size of Foreign Exchange Reserves (October 31, 2019). BIS Paper No. 104a, Available at SSRN:

Yavuz Arslan (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002

Carlos Cantú García

Bank for International Settlements (BIS) - Representative Office for the Americas ( email )


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