In the aftermath of the 1997/1998 crisis, Asian economies have built up large
holdings of international reserves. Although initially encouraged to do so by the
IMF, more recently they have been criticised for maintaining undervalued
currencies, running large current account balance of payments surpluses and
accumulating excessive reserves, policies that have been blamed in part for
causing global economic imbalances. This paper examines two related issues.
The first is the role of closer international macroeconomic policy co-ordination in
rectifying the imbalances and the institutional mechanisms through which this
may be achieved. The second is the alternative ways in which the liquidity needs
of Asian economies may be met without them having to acquire large reserve
holdings. There may be an inconsistency in opposing reserve accumulation in
Asia and at the same time blocking reform that would provide additional security
against subsequent economic and financial crises.