Fears of inflation through a too rapid expansion of the volume of SDRs are of course a matter for controversy, and one’s attitude depends on one’s general attitude towards expansion. But an unduly rapid expansion of SDRs could be opposed also on less controversial grounds. The extent of Central Banks’ requirements of conventional currency reserves for the purpose of intervention seems to have been played down by Mr Barber. He readily conceded that, since transactions in SDRs would remain confined to the public sector and the private sector would continue to deal in conventional foreign exchanges, Central Banks would have to keep ‘working balances’ in the form of foreign currencies for their requirements for official intervention in the market. But if he and his advisers envisage the prospects of official balances in foreign currencies being ever reduced to the equivalents of petty cash holdings of business firms they will have to think again.
KeywordsCentral Bank Foreign Exchange Foreign Currency National Currency Reserve Currency
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