Foreign exchange reserves have assumed considerable importance in the ongoing debate over risks to the international financial system and how it should be reformed in the wake of the great global credit crisis of 2008. The worry is that China's accumulation of foreign exchange reserves and the associated global imbalances were a factor setting the stage for the crisis. The worry for the future is that the country's huge volume of dollar reserves and the incentive this provides for portfolio diversification have disturbing implications for the stability of the dollar. One manifestation of the interest that the media and policy makers have taken in this topic is the frequency of references to ‘historical lessons’ that shed light on possible future developments. For example, one finds frequent reference to how the pound sterling was dethroned by the dollar as the leading international reserve currency and to the implications of this historical episode for what might happen next.