Unraveling the Motives behind Reserve Accumulation: A Study on Asian Economies

Abstract

In the aftermath of the late 1990s Asian financial crisis, there was a remarkable increase in the accumulation of international reserves. Presently, over 60% of global reserves are contributed by 49 Asian nations, a trend that has attracted the attention of international policymakers. This phenomenon, however, continues to be a topic of extensive deliberation among researchers, a subject that this paper delves into. Through empirical analysis using an unbalanced panel of these 49 Asian countries spanning from 1999 to 2021, this study confirms that the primary driver behind this substantial reserve accumulation is a precautionary motive. These Asian economies maintain reserves as a protective measure against transient external imbalances and uncertainties in their balance of payments. Contrary to prevailing notions, the paper dispels the notion that reserve accumulation is significantly impacted by export or GDP growth; instead, it indicates a certain influence from exchange rate stability.