A priori exchange rate volatility increases the required volume of reserves as well as its opportunity costs. A third criterion to judge liquidity provisioning in foreign currency is linked to moral hazard. This arises whenever individuals, institutions or countries expect that they will not have to bear the consequences of their actions.
This will incite them to act less prudently than they would otherwise, leaving third parties to bear some of the consequences of their behaviour. For financial institutions, the prospect of emergency provision of foreign currency liquidity may encourage excessive risk-taking in carry trades or in foreign currency lending. This potentially increases the likelihood of a systemic crisis.