Reserve Diversification

Larry Summers thinks that poor countries should be earning higher returns on their reserves:

WSJ.com - Summers Prods Officials In Emerging Markets To Diversify Reserves: Lawrence Summers... said emerging-market governments should consider diversifying their reserves away from "maximally liquid, maximally safe" short-term securities, such as U.S. Treasury debt.... Mr. Summers said China, Taiwan, Russia, Thailand, India and other countries with significant reserves should consider "more aggressive investment -- either in support of imports that have a high social return or in a much richer menu of international assets."... "It is an irony of our times," Mr. Summers said, "that the majority of the world's poorest people now live in countries with vast international financial reserves -- It is appropriate that some part of the focus of the international financial architecture move towards the challenge of deploying their large reserves as effectively as possible."

Mr. Summers said the that "large flow of capital from the world's most successful emerging markets to the traditional industrial countries" is "the most surprising development in the international financial system over the last half dozen years." Measured as a share of U.S. gross domestic product, U.S. annual borrowing from abroad now amounts to 7%. As he has in past speeches, Mr. Summers cautioned that the U.S. cannot continue to accumulate debt to foreigners at the pace as which it has been...