Reserve accumulation enhances welfare if coupled with capital controls

banquedefrance

Purchasing international reserves can produce productivity gains if it is done jointly with capital controls, according to a working paper published by the Banque de France.

A growth perspective on foreign reserve accumulation by Gong Cheng argues that when domestic firms are occasionally credit-constrained, and do not have direct access to international financial markets, they need domestic saving instruments to increase their retained earnings so that they can sufficiently invest in capital.

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