The article presents factors behind rapid growth of foreign exchange reserves held by central banks (in ten years reserves more than tripled, to over 5 trillion dollars in 2006). Authors present a new concept, OCHAR-Opportunity Cost of Holding Ample Reserves, which is defined as a forgone GDP growth due to too conservative reserve management by central banks. Paper presents OCHAR estimates for 33 countries accounting for three-quarters of world's foreign exchange reserves. Within the framework of growing central bank transparency one can observe that best practices are adopted by an increasing number of central banks, which includes flexible inflation targeting as well as efficient reserves management. It can be said that central banks embarked on a collective reserves diversification journey. Article presents some hypotheses on the possible outcomes of this diversification process and postulates that new steady states of relative asset prices may be significantly different from those seen in the XX century. Authors consider the global stability risks within the context of new global reserves management strategy and postulate that central banks and governments in countries-stakeholders of global imbalances should step up efforts to preserve global price stability and global financial stability.
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