Reserve Accumulation: Implications for Global Capital Flows and Financial Markets

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Current Issues in Economics and Finance

Reserve Accumulation: Implications for Global Capital Flows and Financial Markets

September/October 2004 Volume 10, Number 10

JEL classification: F32, F34

Authors: Matthew Higgins and Thomas Klitgaard

Many central banks—particularly those in Japan and the emerging Asian nations—have been building up their holdings of foreign currency assets. These holdings, known as foreign exchange reserves, may help countries stabilize their currencies, but they can also lead to investment losses for the central banks. The large share of dollar assets among reserve holdings has made foreign central banks important players in U.S. financial markets.

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