Accumulation Of Foreign Exchange Reserves Research Articles

Analysis of the Causes of Hyperinflation in The Republic of Croatia 1991-1993

The paper analyses the causes and dynamics of hyperinflation in the Republic of Croatia – which lasted from 1991 to 1993. Through the analysis of primary and secondary sources, the individual causes of hyperinflation are broken down, and based on the analysis the authors conclude that while the primary inflationary impulse is due to the economic legacy of Yugoslavia, and historical circumstances such as war and the collapse of the former state, the rise in prices would not have been maintained had there not been inflationary taxation as a form of accumulation of foreign exchange reserves. The authors aim to provide newer generations of economists with a complete overview of factors that instigated and maintained inflation in this turbulent and transitory period in Croatia’s history.

The Impact of Foreign Exchange Reserve Accumulation on the Investment of Listed Firms in Vietnam

The Impact of Foreign Exchange Reserve Accumulation on the Investment of Listed Firms in Vietnam

THEORETICAL ANALYSIS OF THE EVOLUTION OF MONETARY SYSTEMS OF RUSSIA IN EXTREME MILITARY-POLITICAL CIRCUMSTANCES OF THE FIRST HALF OF THE TWENTIETH CENTURY (IN CONNECTION WITH THE 80TH ANNIVERSARY OF THE BEGINNING OF THE GREAT PATRIOTIC WAR)

The author of the article, addressed to those who teach and study in higher education economic theory, the history of economic thought and the socio-economic history of Russia, proceeds from the premise that changes in the socio-economic system of the country during the period of change in the dominant technological order actualize the development of the theory of money and the study of various stages of historical evolution of the domestic monetary economy (Russian monetary systems). In this context, an analysis of those periods of this evolution in the first half of the twentieth century, when the credit ruble becomes an extraordinary resource of the «war economy», unfolds. The article also examines the peculiarities of monetary circulation during the operation of the gold standard system and during the period of gold «leaving» to the state reserve fund. The author puts forward a hypothesis according to which the changes taking place in the monetary system in connection with the demonetization of gold are the accumulation of prerequisites for the transition to a post-industrial economic system.
 
 Inclusion in the analysis of the events of the global military-political history of 1914–1917 and 1941–1945, i.e. events of the First and Second World Wars, helps to reveal the real basis on which a special type of economic relations was formed — the phenomenon of «war economy». The article identifies the key factors of instability in the twentieth century — industrial, monetary and world crises. The study of the peculiarities of the development of the crisis in peacetime and in the conditions of a «military-inflationary economy» in the works of prominent Russian economists deepens the understanding of the structural deformation of the national economy.
 
 It is shown that the «price revolution», which characterizes the explosive growth of inflation, has become a vivid manifestation of the world economic instability during the development of extreme military-political events in Russia and in the countries of Western Europe. Attention is drawn to the fact that the «price revolution» in the conjuncture theory of M.I. Tugan-Baranovsky and the works of Z.S. Katsenelenbaum was considered as a function of qualitative changes that took place in the economic system as a result of the expansion of the sphere of money circulation during the transition from natural production to industrial production. The «price revolution» manifested itself with the greatest force in the conditions of the «war economy». The destruction of the national economy was accompanied by the development of «golden» inflation, indicating a chronic commodity deficit.
 
 The author argues that the size of the accumulation of gold in 1920–1945, the emergence of large banks — custodians of the gold and foreign exchange reserves of the countries — members of the monetary unions — largely influenced the results of the competition between the three leading currencies (franc, pound and dollar), claiming to be the world leader. The conclusion is argued that the accumulation of gold and foreign exchange reserves in the conditions of the «war economy» accelerated the formation of a new monetary and financial «map» of the world in the second half of the twentieth century.

Endogenous corporate leverage response to a safer macro environment: The case of foreign exchange reserve accumulation

A country may adopt policy measures such as raising its foreign exchange reserves to better prepare for sudden reversal of international capital flows or currency attacks, which in principle should reduce financial vulnerability for its firms and the entire economy, but the beneficial effect of such policies may be partially offset by endogenous firms' decisions to take on more risks. We present a robust but previously undocumented relationship between corporate leverage and country-level foreign exchange reserve holdings. For 6610 non-financial firms in 23 emerging markets from 2000 to 2006, we show that more foreign reserve accumulation leads to higher corporate leverage. The effect is significantly greater in sectors that are intrinsically more sensitive to uncertainty. We go from correlation to causality via a two-prong instrumental variable strategy: simultaneously (1) instrumenting FX reserves by global commodity price movement, and (2) examining leverage of firms outside the commodity-sensitive sectors.

Determinants of foreign exchange reserve accumulation: empirical evidence from foreign exchange constrained economy

PurposeThe main purpose of this study is to investigate the determinants of foreign exchange reserve accumulation in a foreign exchange constrained economy, namely Ethiopia, over the period of 1981 up to 2017.Design/methodology/approachIn this study, autoregressive distributed lag (ARDL) model is used. Besides, standard unit-root tests such as augmented Dickey Fuller (ADF) and Phillips–Perron (PP) tests are employed to check for the stationarity of the series.FindingsAccording to the results of unit-root tests, our variables are found to be a mixture of I(0) and I(1), and none of our series is I(2). The results of our ARDL model indicates, in the short run, foreign exchange reserve accumulation of Ethiopia is negatively and significantly affected by inflation rate and exchange rate. But, in the long run, inflation rate affects foreign exchange reserve positively and significantly. Additionally, in the long run, external debt affects foreign exchange reserve positively. Similar to its effect in the short run, exchange rate also affects foreign exchange reserve negatively in the long run.Originality/valueThis paper has its originality as it contributes in reasoning out the factors determining, both in the short-run and long-run, foreign exchange deficiency in any developing country with foreign exchange deficiency, taking Ethiopian economy as a case study, and fills the scarce literature on the determinants of foreign exchange reserve accumulation in a developing country.

Accommodative monetary policy, fiscal stimulus and foreign exchange reserves within the framework of Russian national economic interests: Long-standing problems and new challenges

Ultra-accommodative monetary policy, fiscal stimulus, and, as a result, growing debt were the main features of advanced economies development in the 2010s. The pandemic crises of 2020 intensified those trends. Russian authorities had to respond to the new challenges inspired by the global economic slowdown and massive lockdowns thru adopting relaxing monetary conditions and employing fiscal impetus. However, “the new financial reality” of zero-negative interest rates and fast-growing public debt in major advanced economies highlighted the long-standing problems of international financial architecture as well as created new challenges for the Russian national economy. In the article, the author analyzes monetary, fiscal and debt risks challenging the world economy during the last decade and concludes that under current circumstances continuing accumulation of foreign exchange reserves is resulting in growing dependence of Russia economy on the monetary policy of the world’s leading central banks, creating devaluation pressures on the ruble and, consequently, increasing outside inflationary impact on the domestic economy. Ultimately financing the already inflated budget deficits of the United States, the Eurozone and Japan and thereby feeding the wave of “debt tsunami” that is looming from these economies, the Russian Federation is losing investment resources that are so vital for sustainable economic growth recovery. The main goal of the article is to prove that within the framework of the new global financial reality, the further accumulation of foreign exchange reserves preserves ruble undervaluation and ultimately undermines the sustainable development and economic growth of the Russian economy. The author suggests the key elements for national economic policy aimed to support the domestic economy may and should be ruble appreciation. The adjusted paradigm of Russian economic development based on the import substitution model is a strong argument in favor of this proposal.

Adekvatnost deviznih rezervi Republike Srbije i faktori koji utiču na njihovo formiranje

In this paper, the adequacy of foreign exchange reserves in Serbia and the factors that influence their accumulation is analyzed by means of an econometric model. The relevant variables, such as the gross domestic product (GDP), the real effective exchange rate (REER) and monetary aggregate M2/GDP are included in the analysis. The unit root tests applied in the research led to the conclusion that the timeseries were integrated of the order I(1). The cointegration test revealed that there was one cointegration equation. The regression model was estimated using the quarterly data for the period from 2002q1 to 2020q3. The estimated cointegration coefficients showed that the economic activity approximated in terms of the gross domestic product (GDP) had a significant influence on foreign exchange reserves accumulation, which is only followed by appreciation pressure on the dinar (approximated by the REER index) and money supply growth (estimated through the monetary aggregate M2/GDP). In addition to conventional factors, the analysis also points out specific factors and their impact on foreign exchange reserve accumulation in Serbia. The results of the research study show that foreign exchange reserves in Serbia are greater than the levels suggested by standard optimality criteria. The findings also suggest that it is necessary to take into account the dividends realized by foreign investors, as well as some segments of portfolio investment in assessing the specific indicator of the adequate level of foreign exchange reserves.

A Comparative Analysis of the Effectiveness of Precautionary and Mercantilist Approaches to Accumulation of Foreign Exchange Reserves in Pakistan

A Comparative Analysis of the Effectiveness of Precautionary and Mercantilist Approaches to Accumulation of Foreign Exchange Reserves in Pakistan

International Effects of Quantitative Easing and Foreign Reserve Accumulation

In this paper, I develop a two-country general equilibrium model with financial frictions to study the global consequences of quantitative easing (QE) and foreign exchange reserve accumulation. In the model, the key financial frictions are limited commitment and differential pledgeability of collateral, and due to these frictions, the scarcity of collateralizable assets matters. Financial intermediaries have differential and asymmetric pledgeability of assets as collateral and acquire different asset portfolios depending on their home country. QE can reduce long-term bond yields and term premia internationally and depreciate the relatively high-collateral-scarcity currency. Foreign reserve accumulation always depreciates the local currency, but it improves welfare globally if implemented by the high-collateral-scarcity country.

Forecasting the implications of foreign exchange reserve accumulation with a microsimulation model

ABSTRACT We develop a stock-flow-consistent microsimulation model that comprises all relevant mechanisms of money creation and parametrise it to fit actual data. The model is used to make out-of-sample projections of broad money and credit developments under the commencement/termination of foreign reserve accumulation by the Bank of Russia. We use direct forecasts from the miscrosimulation model as well as the two-step approach, which implies the use of artificial data to pre-train the Bayesian vector autoregression model. We conclude that the suggested approach is competitive in forecasting and yields promising results.

What is Slowing Growth in China?

A small part of the slowdown of growth in China in the recent decade may be due to the decline in population growth. The major factor contributing to China’s growth slowdown has been the reversal of earlier policies resulting in foreign exchange reserve accumulation. The resulting pressure for the currency to appreciate undermined the international competitiveness of Chinese exports. This has led to the decline in China’s export/GDP and investment/GDP ratios besides reorienting growth towards domestic consumption, thus also reducing household savings.

СТРАТЕГІЧНІ ПРІОРИТЕТИ РЕФОРМУВАННЯ МІЖНАРОДНОГО ВАЛЮТНОГО ФОНДУ ЯК ФУНКЦІОНАЛЬНОГО ІНСТИТУТУ МІЖНАРОДНИХ ФІНАНСОВИХ ВІДНОСИН

The article is devoted to the functioning of the International Monetary Fund in the status of an international financial cooperative, which forms its credit capital through official borrowings from member countries and the issuance of promissory notes on a bilateral basis. One of the effective tools for providing financial assistance to the IMF to overcome the effects of the global economic crisis was the organization's focus on providing member countries with stand-by loans and extended financing loans. The urgent need for the International Monetary Fund to make greater progress in building an integrated and objective system of supervisory control over the functioning of the global financial system led to the expansion of the IMF's functional competencies for regular monitoring of cross-border movement of capital resources. capital movements, diagnostics of the processes of accumulation of global foreign exchange reserves and their country structure, as well as the development and implementation in regulatory practice of a reliable and objective system of global liquidity ratios, taking into account the systemic impact of global financial instability. Reforming the International Monetary Fund in the format of building a global model of the international economic order should also include the implementation of a set of measures to ensure macroeconomic stability in the world. Special attention should be paid to such areas of reforming the International Monetary Fund as strengthening the openness of its internal paperwork and significantly simplifying the bureaucratic procedures for obtaining credit resources by states. The reform of the IMF in the context of the formation of a global model of the international financial order provides as a mandatory component and redistribution of spheres of influence of member countries within the organization in accordance with their competitive status in world finance and contribution to global economic development. It is about the objective need to strengthen the competitive position for the adoption by the International Monetary Fund of management decisions of developing countries and countries with emerging markets.

The dilemma phenomenon, logistics for monetary independence policy and foreign exchange reserves

The development of financial integration makes a country’s economic links difficult. This is especially so for emerging market countries, which are more vulnerable to economic shocks. The objective of this paper is to explore whether the emerging market countries which adopt floating exchange rate system have realized, at the same time, in the aftermath of a crisis, free movement of capital flow and independence of monetary policy. This is done by introducing foreign exchange reserves into Mundell–Fleming model to do derivation. The approach is supported by empirical research based on 20 emerging countries including China, Brazil, Poland and South Africa and others. It was found that: (1) after the crisis, the emerging market countries that implemented floating exchange rate system did not achieve monetary policy independence. Rapid accumulation of foreign exchange reserves weakened the positive effect of the increase in money supply on output; (2) As a result of holding foreign exchange reserves, the independence of monetary policy in emerging market countries has been challenged, independently of the type of exchange rate system adopted, which proves the existence of dilemma phenomenon. Finally, this study puts forward policy recommendations on the exchange rate system and capital account convertibility for China.

Does international reserve accumulation crowd out domestic private investment?

Foreign exchange reserve accumulation is one of the preferred strategies to protect against susceptibility to financial crises. At the same time, maintaining a healthy international reserve position has the potential to promote domestic investment by reducing the cost of foreign borrowing through improving international creditworthiness. However, contractionary monetary policy in the form of sterilization operations implemented as part of reserve accumulation strategy could crowd out financing for domestic investment. This study examines the relationship between foreign reserve accumulation and domestic private investment by undertaking a dynamic panel data econometric analysis covering 58 countries over the period 2000–2014. The findings suggest that reserve accumulation is positively associated with domestic private investment in the long-run.

Forecasting the Implications of Foreign Exchange Reserve Accumulation With an Agent-Based Model

We develop a stock-flow-consistent agent-based model that comprises a realistic mechanism of money creation and parametrize it to fit actually observed data. The model is used to make out-of-sample projections of broad money and credit developments under the commencement/termination of foreign reserve accumulation by the Bank of Russia. We use direct forecasts from the agent-based model as well as the two-step approach, which implies the use of artificial data to pre-train the Bayesian vector autoregression model. We conclude that the suggested approach is competitive in forecasting and yields promising results.

Did foreign exchange holding influence growth performance during the global financial crisis?

AbstractIn a context of increased foreign exchange reserves holding from emerging and developing countries, this paper investigates the diminishing return of reserves holding assumption over the most severe phase of the global financial crisis (2008Q1–2010Q4). Relying on a Panel Smooth Transition Regression model, we highlight the differential effect of the accumulation of foreign exchange reserves for a set of financial vulnerabilities variables. In a specific manner, although reserves accumulation is effective above a critical threshold to cope with vulnerabilities related to the financial channel, we show that it becomes less effective beyond a certain threshold for domestic bank vulnerabilities. Our results are robust to alternative specifications.

The Reasons for Foreign Exchange Reserves Accumulation in Hong Kong: A Cointegration and Vector Error Correction Approach

This paper empirically investigates the reasons for the large amounts of foreign exchange reserves accumulation in Hong Kong in both long run and short run. The Johansen cointegration test results show a positive long-run relationship between broad money supply and foreign exchange reserves holding, and no significant long-run relationship between exchange rate and foreign exchanges reserve holding, indicating that the increase in money supply is a reason for the rise of foreign exchange reserves holding in long run. The long-run relationships are confirmed by Granger causality test results, and are explained by Hong Kong’s small open economy under fixed exchange rate regime. This paper establishes a vector error correction model to measure the short-run dynamics and the tendency to restore to its long-run equilibrium. The coefficient of error correction term implies a low speed of adjustment of foreign exchange reserves, indicating that the monetary authority of Hong Kong has to hold large amounts of foreign exchange reserves to be effective in foreign exchange reserves intervention and management. The low speed of adjustment in the short run is the second reason why Hong Kong’s foreign exchange reserves holding increases rapidly.

Dynamics of Foreign Exchange Reserves Accumulation and Macroeconomic Stability: The Ghanaian Perspective

Dynamics of Foreign Exchange Reserves Accumulation and Macroeconomic Stability: The Ghanaian Perspective

Foreign Exchange Reserves and the Macro-economy in the GCC Countries

This research looks into the accumulation of foreign exchange reserves and the development of the macro-economy in the Gulf and Cooperation Council countries (GCC countries), namely, Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates. Using yearly data covering the period from 1996 through 2015, the empirical results show positive and significant relationships between foreign exchange reserves accumulation on one hand, and oil prices, GDP, the ratio of current account to GDP, and the ratio of broad money to GDP on the other hand. Moreover, the results point to negative and significant relationships between foreign exchange reserves accumulation on one hand, and real effective exchange rate, the ratio of debt to GDP, and call money rates on the other hand. However, the results show that the stockpile of foreign exchange reserves in the GCC countries is not sensitive to nominal effective exchange rates, neither to the ratio of imports to GDP, and nor to interest rates on the US Dollar. Furthermore, the study shows a robust and positive link between foreign exchange reserves and oil prices on the one hand and economic growth in these countries on the other hand.

On the link between current account and oil price fluctuations in diversified economies: The case of Canada

This study revisits the important relationship between oil prices and current account for an oil-exporting-country with a diversified economy, namely Canada, by paying particular attention to the time-varying nature of this link. To this end, we rely on an innovative method, the time-varying parameter vector autoregressive (TVP-VAR) model with sign restriction. We find that while an oil supply shock has a non-significant impact on the current account, an oil demand shock has a positive and significant effect, which tends to increase over time. In addition, by studying the economic factors underlying the evolution of this relation, we show that the propensity to spend oil revenues on imports has a significant negative influence on the pass-through of oil demand shocks on current account. However, a deepening of the domestic financial market and an accumulation of foreign exchange reserves have a significant positive effect on this relationship.