What determined the sharp increase in currency reserves, especially between 2002 and 2004, was the exchange rate policy of some Asian countries seeking to support their currencies’ peg to the US dollar. This meant that, for a number of countries, the central banks’ currency purchases were, at times, the main vehicle for investment abroad.
Moreover, monetary and credit developments and liquidity conditions also point to upside risks to price stability over the medium to longer-term. Recent monetary data confirm that the underlying rate of monetary expansion remains robust, in an environment of already ample monetary liquidity.