Therefore, precautionary reserve accumulation, however legitimate, unavoidably creates side effects on domestic macro policies as well as spillover effects on other countries. Now, suppose there is “ex ante” an existing pool of reserve assets which countries could tap into under specific circumstances. If access to this pool is credible and predictable, there would be no need for getting those reserves on the market. The search for precaution would not impact domestic or foreign macroeconomic management. It would be neutral as regards exchange rate regimes and polices. It would reduce the incentive for countries to conduct a whole set of policies such as:   generating current account surpluses through active exchange rate management    ring fencing pools of liquidity and capital in local subsidiaries, therefore creating a potential segmentation of international financial markets.   implementing “soft” capital controls to limit the impact of shocks and diminish the need for reserves  All countries, therefore have a common interest in finding ways to disconnect reserve accumulation from exchange rate management and, more generally, from balance of payment situations and monetary policies The need for national reserves could be reduced if credible mechanisms exist to provide for the supply of official liquidity on a multilateral basis. Significant progress has been achieved in this direction during the recent period. A dense network of forex swaps has been put into place between major Central Banks in the midst of the crisis.

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