IMF agrees new reserve adequacy metrics

13 June 2011

In early March, the IMF board agreed to the use of new ways of measuring whether a country’s foreign exchange reserve are adequate. The new policy was developed in the context of debate on whether reserve accumulation in emerging markets like China had proceed too far, while there have been complaints about the IMF’s belief that low-income countries have insufficient levels of reserves. Complementing existing rules of thumb, such as three months of import coverage, the Fund will now use a “a two-stage ‘risk-weighted’ approach” in emerging markets, and an econometric estimation of optimal reserve levels for poor countries.