The end of the rise in global foreign-exchange reserves entails major effects

Glob al foreign-exchange reserves have no longer been increasing since 2014 under the effect of: The decline in foreign-exchange reserves in China because of the decline in its external surplus and its capital outflows; The decline in foreign-exchange reserves in oil-exporting countries due to the moderate level of oil prices; The slow growth in foreign-exchange reserves in other emerging countries due to the disappearance of their external surpluses. The stagnation of global foreign-exchange reserves entails potentially major effects: It has stopped fuelling the bond markets of countries with reserve currencies, which can be expected to eventually drive up long-term interest rates; It puts an end to the financing of US purchases of foreign shares via sales of Treasuries to the rest of the world (the United States’ role as “the world’s banker”); Foreign-exchange reserves no longer contribute to the increase in global liquidity, which ought to be negative for all financial markets.