Foreign Exchange Accumulation by Emerging and Transition Economies: An Explanation and Critique

Abstract

One of the most striking developments of the last few years is the enormous increase of foreign exchange holdings by central banks, especially in many emerging and transition economies. Compared with the end of 1996, the last year before the South-East Asian debt crisis, the official foreign exchange holdings of developing countries have more than doubled (Table 1). In the industrial countries, by contrast, they only increased by 79 per cent, and in the European industrial countries they even declined (by 21 per cent). A special case among the industrial countries is Japan where they have more than trebled.