In the past, central banks were expected—by law, custom, or both—to use their policy instruments to attain a multitude of objectives, such as high levels of growth and employment, provision of funds to the government, and resolution of balance-of-payment problems. Today central banks’...

The paper assesses the costs and benefits of active international reserve management (IRM), shedding light on the question of how intense should IRM be for an emerging market. In principle, an active IRM strategy could lower real exchange rate volatility induced by terms of trade shocks; provide...