This paper has a number of purposes. First, it revisits the older theory of reserve adequacy and optimality to see whether this can still be used and perhaps strengthened in ways that would inform the current debate. Second, it explores the connection between reserve adequacy and currency crisis in the light of recent experience and empirical research. Third, it critically investigates alternative rule-of-thumb measures of reserve adequacy. Fourth, and drawing on the foregoing analysis, it examines the extent to which crisis countries should seek to replenish and build up their international reserves in the post-crisis period. Additional owned reserves represent a guaranteed and unconditional source of liquidity; is this what is needed?

Following the recent financial crises in Southeast Asia and elsewhere, the perennial issue of the exchange rate policy options for small and open developing countries has resurfaced. There seems to be an emerging consensus that the frequency with which 'soft pegs' have been susceptible to speculative attacks in this era of escalating global capital flows has increased pressure for developing countries to adopt 'corner' exchange rate regimes. This paper takes issue with this popular -'one-size-fits-all' - prescription of exchange rate arrangements for developing countries and explores exchange rate policy options for post-crisis Southeast Asia. The principal purpose of this paper is to discuss the case for currency baskets as a general regime in its own right for Southeast Asia as opposed to being a compromise between the two corner solutions. Copyright Blackwell Publishers Ltd 2002.

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a b s t r a c tChina has been stockpiling international reserves at an extremely rapid pace since the late 1990s and has surpassed Japan to become the largest reserve holder in the world. This paper undertakes an empirical investigation to assess the extent of de facto sterilization and capital mobility using monthly data between mid 2000 and late 2008. We find that China has been able to successfully sterilize a large portion of these reserve increases thus making it a reserve sink such as Germany was under the Bretton Wood system.