OPINIONS ON INTERNATIONAL RESERVES MANAGEMENT - POST CRISIS

The recent crisis demonstrated once again the importance of maintaining an adequate level of the international reserves as part of the defense of a country against the shocks internationally transmitted. Liquidity buffers aided the good functioning of financial systems, and allowed countries to cope with sudden foreign capital stops or to manage massive outflows without facing a costly crisis. This logic has been strengthened in the context of the crisis from 2008, when countries with lots of reserves, such as China or Brazil, came through better than those with lower liquid assets. Economists have argued that developing countries need reserves mainly to cover urgent imports and short-term debts. The current level of global reserves far exceeds this traditional postulate. In this context, it is necessary to rethink the adequacy of the level of constituting the reserves portfolio. The dominance of the dollar as a reserve currency, another important feature of the current reserves portfolio, makes the holders become vulnerable to the monetary policy of FED. A greater flexibility of the currency will also be needed. The often called the “trilemma” of international economics dictates: when capital is mobile, countries must choose between fixing their currencies and controlling their domestic monetary conditions. They cannot do both. The domestic currency inflexibility will ultimately lead to asset bubbles and inflation. The pressure of capital flows will depend on the prospects of rich economies, especially America’s. The increment of emerging economies availability to allow the exchange rate to move will depend on what China does - and China may remain forever linked to the dollar. The emergence of a global currency that constitute a genuine means of exchange or the use of cross-border multifaceted cash pools common to IMF members would reduce systemic risks. International regulations for countries with persistent trade surpluses could be a solution to narrow the disparities between developed and developing countries