The 1997 Asian Financial Crisis scared developing countries into accumulating more funds to shield their currencies from crashes, pushing official reserves from less than $2 trillion to a record $14.9 trillion in 2021, according to the International Monetary Fund. While central banks have lately sought to buy and repatriate gold, it only makes up 13% of their assets. Foreign currencies are 78%. The rest is positions at the IMF and Special Drawing Rights, or SDR—an IMF-created claim on hard currencies.

Many economists have long equated this money to savings in a piggy bank, which in turn correspond to investments made abroad in the real economy.

Recent events highlight the error in this thinking: Barring gold, these assets are someone else’s liability—someone who can just decide they are worth nothing.