There has been considerable debate about the rationale behind the reserve
hoarding by Asia, with wide ranging explanations has been offered for this
behavior. In view of the ferocity and suddenness of the Asian crisis of 1997-
98, the precautionary motive no doubt looms large in the decision to build up
reserves to unprecedently high levels. This paper deals more narrowly with
the issues of additive coverage ratios that some of the central banks are
using and presenting new benchmarks for judging reserve adequacy based
on the behavior of different types of capital flows during currency crises.
Alternative measures of the “size” of recent crises and their implications for
levels of reserve adequacy for a number of Asian countries today are also
considered.