Preliminary communication
https://doi.org/10.18045/zbefri.2020.1.271
Capital controls to manage foreign exchange reserves and foreign debts
Chokri Zehri
orcid.org/0000-0003-1420-5384
; Prince Sattam Bin Abdulaziz University, College of Sciences and Humanities in Al-Sulail. Department of Business Administration, Saudi Arabia
Abstract
The study explores the relationship between foreign exchange reserves (FER) and foreign borrowing (FB) within the framework of the management of capital flows. To investigate this relationship and examine the effect of capital control on foreign exchange reserves and external debt of two approaches are applied, the panel vector autoregression model (PVAR) and a traditional model of the reserve demand for 25 emerging countries over the period 1985-2019. The results show a negative association between FER and FB; the direction of the causality was from debts to reserves. Capital controls, as an instrument to reduce the short-term inflows, fail to restrict the accumulation of exchange reserves and conversely, succeed in limiting the recourse to foreign borrowing. Net foreign assets replacing foreign exchange reserves highlights different impacts of capital controls and raise the issue on a correct evaluation of foreign exchange reserves.
Keywords
capital controls; debts; reserves; foreign assets
Hrčak ID:
240203
URI
Publication date:
30.6.2020.
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