Emerging market economies hold foreign exchange reserves to insure against currency crises and to cushion exchange rate movements. Reserves are generally associated with lower sovereign spreads. This column argues that how those reserves are built up is also important. Using a balance-of-payments classification that separates reserves accumulated through private inflows from those financed by public external borrowing, it finds that only privately financed reserves are robustly associated with tighter spreads and lower crisis risk, while debt-financed reserves show a weak or insignificant connection […]