Financial Versus Monetary Mercantilism: Long-Run View of Large International Reserves Hoarding
IMF Working Papers, December 1, 2006
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- Financial Versus Monetary Mercantilism: Long-Run View of Large International Reserves Hoarding
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Bibliographic details
- Authors: Jaewoo Lee, Joshua Aizenman
- Published: December 1, 2006
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451865400.001
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.
- These economies switched to hoarding large international reserves when growth faltered, complicating the distinction between monetary mercantilism and a precautionary response to the legacy 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.
Key findings and analysis
- East Asian reserve accumulation is linked to both:
- Financial mercantilism: long-run subsidization of the cost of capital by manufacturing exporters during high-growth decades.
- Monetary mercantilism: active hoarding of international reserves intended to improve competitiveness.
- The shift to large reserve hoarding occurred when growth faltered, indicating a precautionary motive intertwined with legacy effects of prior financial mercantilism.
- Monetary mercantilism can reduce the effective cost of hoarding via short-term gains in external competitiveness.
- Monetary mercantilism may create negative externalities that foster competitive hoarding among countries.
Publication and metadata
- Authors: Jaewoo Lee, Joshua Aizenman
- Date: December 1, 2006
- Series: Working Paper No. 2006/280
- Issue: 280
- Volume: 2006
- Pages: 22
- DOI: https://doi.org/10.5089/9781451865400.001
- Stock No: WPIEA2006280
- ISBN: 9781451865400
- ISSN: 1018-5941
- Subjects: Financial crises, Financial sector, International reserves, Real exchange rates, Reserves accumulation
- Keywords: financial mercantilism, mercantilism, monetary mercantilism, reserve, WP
IMF Working Papers — Financial Versus Monetary Mercantilism: Long-Run View of Large International Reserves Hoarding