Experience indicates that foreign currency denominated assets within the country and trading of domestic currency outside the country could have destabilising effects on the balance sheets and currencies for reasons essentially external to the domestic economic factors. The adequacy of forex reserves is yet another important consideration in the management of capital account.
First, adequacy has to be viewed not only in terms of trade needs but also other short-term liabilities. Secondly, it is not merely the long-term or short-term debt in terms of original maturity that is relevant for reserves, but the residual maturity. Thus, in managing the capital account, the maturity profile of debt, including short-term debt becomes important.