International Reserves in Emerging Market Countries: Too Much of

WITH INTERNATIONAL reserves four times as large, in terms of their GDP, as in the early 1990s, emerging market countries seem more protected than ever against shocks to their current and capital accounts. Some have argued that this buildup in reserves might be warranted as insurance against the increased volatility of capital flows associated with financial globalization.1 Others view this development as the unintended conse-quence of large current account surpluses and suggest that the level of international reserves has become excessive in many of these countries.2