Search for quality assets drives world reserves

Subject

Global reserves outlook.

Significance

The growth of the foreign-exchange reserves of emerging and developing economies was a closely followed topic in international finance and policymaking circles in the 2000s. A new strand of academic literature suggests it might be in for a renaissance.

Impacts

• The world will soon take more notice of the worsening US net external debt load.
• Paradoxically, the US economy generates these liabilities in part because the world demands them.
• US dollar depreciation will put domestic political pressure on large dollar reserve holders.