The Accumulation of International Reserves as a Defense Strategy

The financial turmoil of the second half of the 1990s showed that even some of the most successful and fast-growing emerging countries risked suffering deep and widespread damages caused by balance of payments crises generated by capital flow reversals. In fact, as reflected in the contemporaneous debate, most of these countries suffered doubly, both from the crises themselves and from the burden of the rescue packages put together by the International Monetary Fund. Stung by the costs of those crises and their resolution, emerging countries seemed to have adopted in the 2000s a different strategy, dubbed "self insurance". The central and most visible, although by no means the only, instrument of this strategy has been the relentless accumulation of international reserves