The issue of managing the level of reserves thus becomes, in many ways, as important as the level itself. Secondly, there are judgements involved in assessing whether the level of forex reserves provides comfort in the face of some weakness in domestic fundamentals.
Such a comfort will perhaps not be forthcoming if the current account deficit is not sustainable or exchange rate is highly overvalued. For example, it has been argued that high level of reserves could, under some circumstances, give comfort against weaknesses in the financial sector or high public debt or encourage laxity in financial and fiscal policies.