The Other India (clearly the one which knows NOTHING about Economics) has a whole article on Foreign Exchange Reserves. The level of ignorance, intellectual laziness is astounding. They say never attribute to malice that which you can attribute to stupidity. But I’m sorry – this HAS to be malice.
The article paints foreign reserves as some sort of conspiracy by the West to keep the developing world poor. This concept is so laughable that I my stomach is still hurting.
For the past 50 years, rich countries have steadily held reserves equivalent to about three months’ worth of their total imports. As money circulates more and more quickly in a globalized economy, however, many countries have felt the need to add to their reserves, mainly to head off investor panic, which can strike even well-managed economies. Since 1990, the world’s nonrich nations have increased their reserves, on average, from around three months’ worth of imports to more than eight months’ worth — or the equivalent of about 30 percent of their G.D.P
China and other countries maintain those reserves mainly in the form of supersecure U.S. Treasury bills; whenever they buy T-bills, they are in effect lending the United States money. This allows the U.S. to keep interest rates low and Washington to run up huge deficits with no apparent penalty.
All the money spent on T-bills — a very substantial sum — could be earning far better returns invested elsewhere, or could be used to pay teachers and build highways at home, activities that bring returns of a different type.
So let’s wee if we can summarize here.
- Western countries hold only 3 months’ worth of imports, while “nonrich” countries, whatever those are, hold 8 months of imports – to avoid “investor panic”.
- And assuming these forex reserves are evil scum sent from those horrendous heretic capitalists with horns on their heads (ok – I am creating a small bhoosa-ka-aadmi here), then having them be 30% of your GDP is bad.
- Further, all countries are apparently stupid enough to hold their reserves in US t-bills, and not a basket of currencies….
And finally, this means that America is being financed by the universe, and they are living it up like kings (partially true, but not in the tone that has been conveyed above)