Foreign exchange reserves in Africa: benefits, costs and political economy considerations

Foreign exchange reserves are an integral part of the policy toolkit in African countries. Based on a survey of African central banks, this paper relates the reasons for holding reserves to some of the economic circumstances in their countries. It also discusses how African central banks address any political economy challenges arising from investing scarce resources into safe but low-yielding foreign exchange reserves.

JEL classification: F31, E58, D72

Keywords: monetary policy, foreign exchange reserves, African economies