October 8, 2025Open Access

Determinants of Indonesia’s Foreign Exchange Reserves Using the Monetary Approach to the Balance of Payments (MABP)

Key Points

Real interest rates negatively impact foreign exchange reserves, affecting overall financial stability.
Economic growth shows a positive effect on reserves, emphasizing the importance of robust economic activity.
The study employs FMOLS method on quarterly data spanning from 2010 to 2024, ensuring comprehensive results.
Findings highlight the role of domestic credit and exchange rates, urging policymakers to consider these determinants.

Abstract

This study aims to analyze Indonesia's foreign exchange reserves using a monetary balance of payments approach. The data used are quarterly time series data for the period 2010.Q1 – 2024.Q4. The method used is FMOLS. The results show that real interest rates and domestic credit have a negative and significant effect on foreign exchange reserves. However, in contrast, economic growth and the real exchange rate have a positive and significant effect on Indonesia's foreign exchange reserves during the period 2010 – 2024.

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