Currency crises and foreign reserves-IMF paper

- Central Banking staff
- 09 Mar 2001

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How far will a government run down its stock of foreign reserves in a defence of a fixed exchange rate? This is the central question posed by an IMF working paper by Piti Disyatat. In other words, what is the threshold level of foreign reserves at which maintenance of the fixed exchange rate is no longer viable and a devaluation is enforced?

Traditional models, inspired largely by Krugman (1979), assume that this threshold level is zero, without justifying why this should be the case. More

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