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Financial Versus Monetary Mercantilism: Long-Run View of the Large International Reserves Hoarding

Author/Editor: Aizenman, Joshua | Lee, Jaewoo
Authorized for Distribution: December 1, 2006
Electronic Access: Free Full Text (PDF file size is 473KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: The sizable hoarding of international reserves by several East Asian countries has been frequently attributed to a modern version of monetary mercantilism-hoarding international reserves in order to improve competitiveness. From a long-run perspective, manufacturing exporters in East Asia adopted financial mercantilism-subsidizing the cost of capital- during decades of high growth. They switched to hoarding large international reserves when growth faltered, making it harder to disentangle the monetary mercantilism from a precautionary response to the heritage of past financial mercantilism. Monetary mercantilism also lowers the cost of hoarding through its short-term boost to external competitiveness, but may be associated with negative externalities leading to competitive hoarding.
 
Series: Working Paper No. 06/280
Subject(s): Foreign exchange reserves | Asia | Export competitiveness | Capital | Manufacturing sector
Author's keyword(s): Mercantilism | cost of capital | competitive real depreciations | self insurance | precautionary hoarding
 
English  
    Published:   December 1, 2006        
    ISBN/ISSN:   1934-7073   Format:   Paper
    Stock No:   WPIEA2006280   Pages:   22
    Price:   US$18.00
       
     
Please address any questions about this title to publications@imf.org.