LATELY, Bank Negara Malaysias foreign-reserves position has assumed renewed prominence. Hovering around US$96 billion, the reserves have dipped below the psychological mark of sufficiency of US$100 billion ” the first time since September 2010. This dip has raised concerns that any further erosion of the reserves may cause more capital flight, impair the countrys credit rating and, thereby, spark a downward spiral of the economy as in those dark days of the 1997/1998 Asian financial crisis. Such concerns suggest that foreign reserves are relevant after all. But are these worries justified?
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