These recent measures in Chile and Mexico to reduce foreign reserve holdings and to limit foreign exchange growth suggest that in some Latin American countries the cost of holding additional foreign reserves may be exceeding the benefits. Mexico, for example has put in place a policy to limit the growth of foreign exchange reserves by selling foreign currency according to a pre-determined formula.
Impact on other economies of holding surplus reserves The argument against countries holding too large a stock of reserves has another dimension. It is argued that struggling economies with high levels of foreign exchange reserves are really financing the development of other large economies by holding their government securities.