Further, the level of reserves also takes into account the operational need to enable the  BIS Review 64/2000  4  Reserve Bank to even out the mismatches between supply and demand in forex markets and thus ensure orderly conditions in a less developed market characterised by lumpy demands.
On exchange rate, the possibility of persistent misalignments due to reasons other than domestic factors cannot be ruled out and correction cannot be left entirely to the market. The developing countries do need some armoury to address such issues. It appears almost certain that capital controls would be ineffective if, in popular perception, the exchange rate does not appear to be realistic.