International reserves, if it is too large, can be poisonous

TECHNOCRATS in emerging market countries have typically viewed foreign exchange reserves as money in the bank, the more, the better. Over the past three decades, a shift to flexible exchange rate regimes and an ability to borrow in domestic currency eased pressure on industrial countries to accumulate reserves.

Meanwhile, emerging market and developing countries continued to struggle with maintaining adequate reserve levels. Only recently has the large scale of reserve accumulation in emerging markets raised questions about its necessity and even its wisdom.