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Rules-based foreign reserve policy required

13 1 0
15.07.2019

Dr. Jeffrey I. Kim

If South Korea had had sufficient foreign reserves during the 1997-98 Asian financial crisis, it would not have suffered from deadly massive unemployment and an economic crash. Its per capita GDP in 2018 would have been more than $50,000 instead of $31,363. Socially and politically much improvement could have been made in Korea.

Foreign reserves are financial assets held by the central bank. These assets include foreign currencies, U.S. Treasury bills, Special Drawing Rights (SDRs), and an IMF reserve position.

Foreign reserves are required for three reasons: (1) Private import payments unexpectedly exceed private export earnings, (2) The nation experiences a political crisis and cannot pay off foreign debt on time, or (3) The nation confronts international currency speculators during a currency crisis.

All IMF member countries, even the U.S. and EU member states need to hold some amount of foreign currency reserves.

The dominant part of foreign reserves consists of reserve currencies. Major reserve currencies are the U.S. dollar and the euro. Other reserve currencies include the pound sterling, Swiss franc, Canadian dollar, etc. The U.S. dollar is the world's dominant reserve currency. It should be noted that foreign........

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