Therefore, we have to recognise not only the costs – the cost of holding reserves may be negative or positive – which are quantifiable but also the benefits which are not quantifiable. These have public policy implications as there is a fiscal policy element, namely the quasi-fiscal cost of reserves. Sixth, there is another link between fiscal policy and reserves.
If one reads the rating agencies’ sovereign rating, one may find a mention of how forex reserves are perceived to provide a cushion against fiscal conditions. In some sense, therefore, even if there is a fiscal cost of carrying reserves, they also give a benefit to the fisc and this is recognized by analysts.