Speculative capital inflows need to be absorbed and thus reinforce the need for reserve accumulation. This, in turn, further restricts the room for manoeuvre, for instance in response to the import of inflationary pressures and the build-up of asset price bubbles.
As a consequence, national wealth is increasingly badly diversified and returns to foreign exchange reserves and income on foreign assets become less and less attractive. At the  BIS central bankers’ speeches  3  same time, domestic financial markets are penalised, as the concomitant restrictions imposed by the central bank hinder financial development and lead to financial repression.