Why Currency Reserves Matter

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This goes in the “obscure but sort of important” folder. Eduardo Porter reports that developing countries are building up excessively large currency reserves, partly as “insurance against financial disaster.” Rather tragically, these countries tend to lose money on all the dollars they’re buying up—and it’s not like they can really afford to lose money here—and what’s worse, the money they spend padding their reserves is money they’re not spending on important things, like health care or infrastructure or other domestic investments.

So why are they all doing it? Dean Baker and Karl Walentin have argued before that it’s because everyone thinks the international financial system is rather volatile and no one wants to go through the same meltdown that countries in East Asia suffered in the late ’90s. But the fact that these poorer countries all have to incur very large costs because of a rickety system set up largely to benefit the richer countries indicates, as Baker and Walentin wrote, “a serious failing of international financial institutions.”

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Corrupt leaders the world over can (and will) try to shut down the truth, but when the truth has millions of people on its side, you can't keep it down for good. And there's no more powerful or urgent argument for your support of Mother Jones' journalism right now than that. We need to raise about $450,000 to hit our online fundraising budget in these next few months, so please read more from Monika and pitch in if you can.

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