Chapter 3 Foreign Exchange Reserves’ Accumulation and the Impact on the Economies of Algeria and Tunisia Fatiha Talahite and Samouel Beji Contents 3.1 Introduction ................................................................................. 30 3.2 Accumulation of Foreign Exchange Reserves ............................................. 32 3.2.1 The Extent .......................................................................... 32 3.2.2 Analysis at the Level of the Global Economy .................................... 34 3.3 How Do Arab Countries Use These Funds? ............................................... 37 3.3.1 Arab SWFs ......................................................................... 37 3.3.2 The Algerian Income Regulation Fund (FRR) .................................... 39 3.4 Theoretical Framework and Empirical Facts of the Foreign Exchange Reserves Accumulation ......................................................... 44 3.4.1 Incentives Behind Hoarding Behaviour ........................................... 44 3.4.2 Are Foreign Exchange Reserves Excessive in Algeria and Tunisia? ............ 45 3.5 MENA Region: FOREX Reserves Accumulation and Financial Background ........... 50 3.5.1 Banking Reforms, Openness and Growth ......................................... 50 3.5.2 Lack of Financial Investment Opportunities ...................................... 53 3.6 Conclusion: What Is the Alternative to FOREX Reserves Accumulation? ............. 57 References ........................................................................................ 58 For this research, Fatiha Talahite received support from the Algerian National Research Program in Economics (DGRSDT, Alger) in the project “Rents, Institutions and Growth: Research of links and mechanisms of interaction in the Algerian economy”. JEL: 023; 024; 055; P33; Q43 F. Talahite (*) Centre de Recherches Sociologiques et Politiques de Paris, 59-61 rue Pouchet, 75849 Paris Cedex 17, France e-mail: fatiha.talahite@gtm.cnrs.fr S. Beji Teaching Assistant at University of Versailles-Saint Quentin (France), 55 rue Marin Marie, Saint Lo ˆ 50000, France e-mail: samouel.beji@gmail.com M. Peeters et al. (eds.), Financial Integration, Financial and Monetary Policy Studies 36, DOI 10.1007/978-3-642-35697-1_3, # Springer-Verlag Berlin Heidelberg 2013 29