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Park, Suk-Gang;Park, Bok-Jae
- International Commerce and Information Review
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- v.15 no.3
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- pp.41-62
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- 2013
This paper, the accumulation of foreign exchange reserves in the financial systems of emerging markets mid-to long-term impact on how investigated. The accumulation of foreign exchange reserves in emerging markets is a highly effective means to prevent the recurrence of another financial crisis as well as to minimizing risks of financial crisis. By examining the economic effects of excessive accumulation of foreign exchange reserves on factors such as foreign liabilities, domestic consumption, domestic investment and economic growth from a mid-to long-term perspective, it reduced domestic consumption, but on the other hand, led to the expansion of the trade-related industries based on increase of exports. Although China implements a policy to substantially increase domestic investment, other emerging market countries have stagnant domestic investment activities due to excessive accumulation of foreign exchange reserves. Such fact signifies that excessive accumulation of foreign exchange reserves increases potential risks by depressing the mid-to long-term economic growth through the scale down of trade-related industries.
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