Emerging markets circles are abuzz over former U.S Treasury Secretary Lawrence Summers's recent speech, underlining the levels of surplus foreign exchange reserves being held by the central banks of most developing countries, especially in Asia. A Financial Times editorial notes the level of excess reserves: in the order of $1,500 billion above what is needed to guard against foreign exchange crises.
The Financial Times editorial, however, offers an alternative to Summers's suggestion for putting the excess exchange reserve to good use. Summers suggests an investment fund overseen by the IMF and World Bank. Asset management, opines the Financial Times, is not part of the IMF or World Bank expertise. It argues for another option: transferring surplus reserves to the private sector. China, the editorial article says, could write a check of several hundred dollars to each of its citizens. More realistically, it continues, the transfer would be effected in the same way India now roughly achieves it: by aiming for a measure of progressive capital account liberalization to allow private citizens to accumulate foreign assets.