SHORT OF MONEY… BUT KEEPING TANKS FILLED OF IT

Due to the instability of world finances, developing countries have to keep huge reserves of unused money just to defend their currencies from speculation. To build up those reserves, poor countries are borrowing hard currency from the US at interest rates as high as 18%, and lending this back to the US (in the form of interest on US Treasury bonds) at 3%. Most countries invest their foreign-exchange reserves in relatively safe, short-term assets, such as US Treasury bills. The yields on such instruments are currently very low - well below the interest rates that developing countries pay on their debt.