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We study the political economy of international reserve holdings in the developing world. We argue that political institutions channel two types of domestic pressures for reserve accumulation—precautionary and mercantilist—but in distinctly different ways. Democratic institutions heighten the impact of mercantilist pressures, while authoritarian institutions heighten the impact of precautionary pressures. We provide evidence consistent with these hypotheses using data from eighty‐two developing countries. Confronting the view that China's reserve holdings are "excessive" or "worrisome," we also show that given its political institutions and economic policies, China's reserve holdings are not aberrant when compared to other developing countries. ..PAT.-Unpublished Manuscript [ABSTRACT FROM AUTHOR]