BIS on FX Reserve Management

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FX reserve management: elements of a framework
BIS Papers No 38
March 2008

In recent years, issues related to the management of foreign exchange reserves have gained prominence, and reserve management practices have evolved rapidly. Against this background, the Monetary and Economic Department of the Bank for International Settlements organised an ad hoc meeting of senior central bankers from both industrial and emerging market countries responsible for the management of reserves, which took place on 1-2 March 2007. The meeting covered key issues in foreign exchange reserve management, including the broad framework in which it is conducted, asset allocation at the strategic, tactical and portfolio management levels, risk measurement and management, organisational structures and disclosure. This paper was prepared as background and provides a general framework to help organise the various issues that arise in the context of FX reserve management.

www.bis.org/publ/bppdf/bispap38.pdf?noframes=1

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FX reserve management: trends and challenges
BIS Papers No 40
May 2008

The increasing size and concentration of official foreign exchange reserves after years of continued expansion, especially since the Asian crisis, have led to renewed interest in the way reserve management decisions are taken and in their possible impact on financial markets. Reserve management practices have evolved substantially over the past decade or so, reflecting changes in both the economic and the broader institutional environment. While some of these changes have been remarked upon, others have attracted less attention. This paper documents some of the main changes in foreign exchange reserve management practices, considers the main drivers behind them, and explores some of the challenges ahead. We focus, in particular, on those challenges that could have a more significant impact on financial markets. These include the choice of an appropriate balance between risk and return, of the numeraire currency and of the degree of public disclosure, from which some conclusions are drawn concerning the future of the US dollar as a reserve currency and volatility in financial markets. The discussion relies extensively on a survey of central banks and monetary authorities representing in total about 80% of global foreign exchange reserves at end-2006.

www.bis.org/publ/bppdf/bispap40.pdf?noframes=1

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also see: www.bis.org/publ/cpss83.pdf and www.bis.org/publ/cpss83comm.pdf