Germany: Bundesbank Monthly Report: Reserve assets: their development and importance in monetary union

Global reserve assets have continued to grow strongly right up to the present. Despite the currency crises in Latin America and in Asia, they have more than doubled over the past ten years. In the brief period since the start of 1999, when European monetary union was established, there has been a worldwide increase of around 35%. However, the Eurosystem, one of the principal holders of reserve assets, has not contributed to this increase. In fact, it has slightly reduced its reserve assets overall (expressed in US dollars). There has actually been a distinct decrease in Germany's reserve assets in the past four years. Nonetheless, the importance and appropriate level of reserve assets under the special conditions of monetary union continues to be a subject of debate in Germany, too. This article takes up that issue and comes to the conclusion that, although Germany's reserve assets are quite substantial in absolute terms, they are on the low side by international comparison when measured in terms of Germany's economic size and high degree of openness. The article also examines the terms and conditions under which Germany's reserve policy operates within European monetary union