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The accumulation of foreign exchange by central banks: Fear of capital mobility?

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  • Steiner, Andreas
Abstract
Central banks’ foreign exchange holdings have increased significantly in the recent past. This article explains this development as a result of the liberalisation of international capital markets. First, central banks accumulate reserves in order to protect the economy from detrimental effects of sudden stops in capital flows and flow reversals. Second, central banks use the accumulation of reserves as a substitute for capital controls. Changes in reserves are a form to manage net capital inflows. They permit the central bank to preserve some leeway for an independent monetary and financial policy despite the classic policy trilemma. The empirical analysis of a large panel data set supports the hypothesis that the accumulation of reserves is the consequence of a “fear of capital mobility” suffered by central banks.

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  • Steiner, Andreas, 2013. "The accumulation of foreign exchange by central banks: Fear of capital mobility?," Journal of Macroeconomics, Elsevier, vol. 38(PB), pages 409-427.
    • Handle: RePEc:eee:jmacro:v:38:y:2013:i:pb:p:409-427
    DOI: 10.1016/j.jmacro.2013.08.002
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    Cited by:

    1. Mandilaras, Alex S., 2015. "The international policy trilemma in the post-Bretton Woods era," Journal of Macroeconomics, Elsevier, vol. 44(C), pages 18-32.
    2. Kumhof, Michael & Yan, Isabel, 2016. "Balance-of-payments anti-crises," Journal of Macroeconomics, Elsevier, vol. 48(C), pages 186-202.
    3. Andrew J. Filardo & Pierre L. Siklos, 2016. "Prolonged Reserves Accumulation, Credit Booms, Asset Prices and Monetary Policy in Asia," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 52(2), pages 364-381, February.
    4. Hur, Sewon & Kondo, Illenin O., 2016. "A theory of rollover risk, sudden stops, and foreign reserves," Journal of International Economics, Elsevier, vol. 103(C), pages 44-63.
    5. Ruijie Cheng & Ramkishen S. Rajan, 2020. "Monetary trilemma, dilemma, or something in between?," International Finance, Wiley Blackwell, vol. 23(2), pages 257-276, August.
    6. repec:prg:jnlcfu:v:2021:y:2021:i:2:id:561 is not listed on IDEAS
    7. Pinter, Julien & Pourroy, Marc, 2023. "How can financial constraints force a central bank to exit a currency peg? An application to the Swiss franc peg," Journal of Macroeconomics, Elsevier, vol. 75(C).
    8. Ondřej Šíma, 2021. "The effect of the international movement of the factor of production (capital and labor) on the balance of primary incomes [Vliv mezinárodního pohybu výrobního faktoru kapitálu a práce na bilanci p," Český finanční a účetní časopis, Prague University of Economics and Business, vol. 2021(2), pages 27-45.
    9. Shiu‐Sheng Chen & Tzu‐Yu Lin, 2019. "Do Exchange Rate Shocks Have Asymmetric Effects on Reserve Accumulation? Evidence from Emerging Markets," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(4), pages 1561-1586, October.

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    More about this item

    Keywords

    International reserves; Capital mobility; Macroeconomic trilemma;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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