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

December 1, 2006

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Format: Chicago

Jaewoo Lee, and Joshua Aizenman. Financial Versus Monetary Mercantilism: Long-Run View of Large International Reserves Hoarding, (USA: International Monetary Fund, 2006) accessed December 3, 2024

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.

Subject: Financial crises, Financial sector, International reserves, Real exchange rates, Reserves accumulation

Keywords: Financial mercantilism, Mercantilism, Monetary mercantilism, Reserve, WP

Publication Details

Pages:

22
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2006/280
Stock No:

WPIEA2006280
ISBN:

9781451865400
ISSN:

1018-5941

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