In a perfect world, there would be no foreign exchange reserves. If a country ran the occasional current account surplus or deficit, it would quickly be neutralised by a stronger or weaker currency. Any policymaker with an interventionist bent would be banished to the corner, wearing a pointy hat.

This is, however, a world of persistently unbalanced trade and investment flows, in which intervention to limit currency appreciation has been tolerated for too long. The old, vague prescriptions on the size of FX reserves – sufficient to cover three months of imports, for example – have been roundly ignored for at least a decade, since the 1997 Asia crisis demonstrated that much greater reserves might be needed to avert a currency crisis. Some Asian countries have certainly benefited from bolstered cushions, most recently helping them to avoid contagion from the eurozone crisis. Others have gone too far. China, with more than a quarter of the world’s $8,400bn in reserve assets, has enough to cover 30 months of imports. Because their size rules out any meaningful reallocation, reserves perpetuate distortions. More than 90 per cent of holdings are in exorbitantly privileged G3 currencies that have policy settings which would be unacceptable anywhere else. The US government spent $12 beyond the tax take every day, for every person in the country, in the first nine months of fiscal 2010. Yet dollar assets keep gaining, in part to feed this FX machine.

The logical way to wind down reserves would be by reversing the process: for reserves managers to wait until the local currency is weakened by big capital outflows or a sudden lack of inflows, then sell foreign holdings to prop it up. As that is unlikely to happen in sufficient scale any time soon, the world will have to do it the hard way. Big reserves holders – mostly developing countries – need to embrace policies aimed at stimulating domestic demand at the expense of exports, thus trimming current account surpluses over time. They must relax controls over currencies too, so that market-driven pressures clear through the exchange rate rather than FX accumulation. None of them will embrace measures such as these with any great enthusiasm. It is the challenge of the richer economies to make them.