The cost of holding foreign exchange reserves

Recent studies that have emphasized the costs of accumulating reserves for self-insurance purposes have overlooked two potentially important side-effects. First, the impact of the resulting lower spreads on the service costs of the stock of sovereign debt, which could substantially reduce the margin...

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Autores principales:	Levy Yeyati, Eduardo, Gómez, Juan Francisco
Formato:	Documento de trabajo publishedVersion
Lenguaje:	Inglés
Publicado:	Universidad Torcuato Di Tella 2024
Materias:	Reservas de divisas Crisis Financiera Financial crisis Flujo de capitales Capital flows International reserves Exchange rate policy
Acceso en línea:	https://repositorio.utdt.edu/handle/20.500.13098/13060
Aporte de:	Repositorio Digital Universidad Torcuato Di Tella de Universidad Torcuato Di Tella

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spelling	I57-R163-20.500.13098-130602024-09-28T07:00:21Z The cost of holding foreign exchange reserves Levy Yeyati, Eduardo Gómez, Juan Francisco Reservas de divisas Crisis Financiera Financial crisis Flujo de capitales Capital flows International reserves Exchange rate policy Recent studies that have emphasized the costs of accumulating reserves for self-insurance purposes have overlooked two potentially important side-effects. First, the impact of the resulting lower spreads on the service costs of the stock of sovereign debt, which could substantially reduce the marginal cost of holding reserves. Second, when reserve accumulation reflects countercyclical LAW central bank interventions, the actual cost of reserves should be measured as the sum of valuation effects due to exchange rate changes and the local-to-foreign currency exchange rate differential (the inverse of a carry trade profit and loss total return flow), which yields a cost that is typically smaller than the one arising from traditional estimates based on the sovereign credit risk spreads. We document those effect s empirically to illustrate that the cost of holding reserves may have been considerably smaller than usually assumed in both the academic literature and the policy debate. 2024-09-27T16:43:02Z 2024-09-27T16:43:02Z 2019 info:eu-repo/semantics/workingPaper info:eu-repo/semantics/publishedVersion https://repositorio.utdt.edu/handle/20.500.13098/13060 eng Documento de Trabajo. Universidad Torcuato Di Tella. Escuela de Gobierno info:eu-repo/semantics/openAccess https://creativecommons.org/licenses/by-sa/2.5/ar/ 22 p. application/pdf application/pdf Universidad Torcuato Di Tella Escuela de Gobierno
institution	Universidad Torcuato Di Tella
institution_str	I-57
repository_str	R-163
collection	Repositorio Digital Universidad Torcuato Di Tella
language	Inglés
orig_language_str_mv	eng
topic	Reservas de divisas Crisis Financiera Financial crisis Flujo de capitales Capital flows International reserves Exchange rate policy
spellingShingle	Reservas de divisas Crisis Financiera Financial crisis Flujo de capitales Capital flows International reserves Exchange rate policy Levy Yeyati, Eduardo Gómez, Juan Francisco The cost of holding foreign exchange reserves
topic_facet	Reservas de divisas Crisis Financiera Financial crisis Flujo de capitales Capital flows International reserves Exchange rate policy
description	Recent studies that have emphasized the costs of accumulating reserves for self-insurance purposes have overlooked two potentially important side-effects. First, the impact of the resulting lower spreads on the service costs of the stock of sovereign debt, which could substantially reduce the marginal cost of holding reserves. Second, when reserve accumulation reflects countercyclical LAW central bank interventions, the actual cost of reserves should be measured as the sum of valuation effects due to exchange rate changes and the local-to-foreign currency exchange rate differential (the inverse of a carry trade profit and loss total return flow), which yields a cost that is typically smaller than the one arising from traditional estimates based on the sovereign credit risk spreads. We document those effect s empirically to illustrate that the cost of holding reserves may have been considerably smaller than usually assumed in both the academic literature and the policy debate.
format	Documento de trabajo publishedVersion
author	Levy Yeyati, Eduardo Gómez, Juan Francisco
author_facet	Levy Yeyati, Eduardo Gómez, Juan Francisco
author_sort	Levy Yeyati, Eduardo
title	The cost of holding foreign exchange reserves
title_short	The cost of holding foreign exchange reserves
title_full	The cost of holding foreign exchange reserves
title_fullStr	The cost of holding foreign exchange reserves
title_full_unstemmed	The cost of holding foreign exchange reserves
title_sort	cost of holding foreign exchange reserves
publisher	Universidad Torcuato Di Tella
publishDate	2024
url	https://repositorio.utdt.edu/handle/20.500.13098/13060
work_keys_str_mv	AT levyyeyatieduardo thecostofholdingforeignexchangereserves AT gomezjuanfrancisco thecostofholdingforeignexchangereserves AT levyyeyatieduardo costofholdingforeignexchangereserves AT gomezjuanfrancisco costofholdingforeignexchangereserves
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The cost of holding foreign exchange reserves

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