{
  "title": "Two Things That Keep Central Banks' Reserve Managers Awake at Night",
  "publication": "IMF Blog, March 29, 2017",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2017/03/29/two-things-that-keep-central-banks-reserve-managers-awake-at-night",
  "canonical": "https://www.imf.org/en/blogs/articles/2017/03/29/two-things-that-keep-central-banks-reserve-managers-awake-at-night",
  "overlayPath": "/en/blogs/articles/2017/03/29/two-things-that-keep-central-banks-reserve-managers-awake-at-night/index.md",
  "summary": "Title: Two Things That Keep Central Banks' Reserve Managers Awake at Night",
  "sections": [
    {
      "heading": "Overview and authorship",
      "content": "- Title: Two Things That Keep Central Banks' Reserve Managers Awake at Night\n- Authors: Veronica Bacalu, Vincent Fleuriet, Asad Qureshi\n- Date: March 29, 2017\n- Focus: central bank management of international reserves and the main concerns of reserve managers."
    },
    {
      "heading": "Role and investment objective of reserve managers",
      "content": "- Primary role: manage a country’s international reserves.\n- Overarching investment objective: help preserve the external value of the domestic currency.\n- Three main pillars supporting the objective:\n  - preserving the capital of the investments,\n  - ensuring the liquidity of assets—how tradable they are,\n  - earning a return."
    },
    {
      "heading": "Survey of reserve managers",
      "content": "- Sample: 63 central banks from advanced, emerging, and low-income countries.\n- Purpose: understand reasons behind reserve managers' worries and collect their top concerns."
    },
    {
      "heading": "Finding 1 — Low interest rates",
      "content": "- Low interest rates identified as the main concern among reserve managers.\n- Consequences noted:\n  - Returns on international reserves are low, and in some cases even turned negative.\n  - Reserve managers struggle to find sources of income without taking unacceptable risks.\n  - Pre-crisis environment: safe and liquid assets (such as government bonds) generally provided good returns and allowed the three pillars to be relatively easily achieved.\n  - Post-crisis environment: that tradeoff is no longer straightforward.\n- Actions taken and tradeoffs:\n  - Some managers invested in higher-yielding currencies to increase returns, but this introduced additional foreign exchange volatility and currency risk.\n  - Investing in emerging market or corporate bonds may increase short-term income but may not provide a steady stream of investment income.\n- Core dilemma: what risks to take, how to take them, and whether new solutions will deliver desired results."
    },
    {
      "heading": "Finding 2 — Communicating choices",
      "content": "- Communication practice: asset managers have started to communicate their choices more, but many central banks still find it hard to convey the choices they make and why.\n- Specific observation from survey: the majority of central banks surveyed do not publish their reserve management guidelines.\n- Purpose of clear communication:\n  - Helps financial markets and the public understand reserve management choices.\n  - Clarifies that managing international reserves is not about making a profit but about preserving the external value of the domestic currency and prioritizing stability."
    },
    {
      "heading": "Practical approach and policy implications",
      "content": "- Observed strategy: most reserve managers emphasize the first two pillars—capital preservation and a high level of liquidity—at the expense of return.\n- Recommendation for stakeholders: support a strategy prioritizing capital preservation and liquidity, especially in times of increased financial volatility and low interest rates.\n\nSource: IMF blog post \"Two Things That Keep Central Banks' Reserve Managers Awake at Night,\" Veronica Bacalu, Vincent Fleuriet, Asad Qureshi, March 29, 2017.\n\n---\n\n\n References\n\n- https://www.imf.org/wp-content/uploads/2017/03/imf-reserve-mgrs-chart1.jpg\n- https://www.imf.org/wp-content/uploads/2017/03/imf-reserve-mgrs-chart2.jpg\n\nSource: https://www.imf.org/en/blogs/articles/2017/03/29/two-things-that-keep-central-banks-reserve-managers-awake-at-night"
    }
  ],
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    "Authors: Veronica Bacalu, Vincent Fleuriet, Asad Qureshi",
    "Published: March 29, 2017",
    "Title: Two Things That Keep Central Banks' Reserve Managers Awake at Night",
    "Authors: Veronica Bacalu, Vincent Fleuriet, Asad Qureshi",
    "Date: March 29, 2017",
    "Focus: central bank management of international reserves and the main concerns of reserve managers.",
    "Primary role: manage a country’s international reserves.",
    "Overarching investment objective: help preserve the external value of the domestic currency.",
    "Three main pillars supporting the objective:",
    "Sample: 63 central banks from advanced, emerging, and low-income countries.",
    "Purpose: understand reasons behind reserve managers' worries and collect their top concerns.",
    "Low interest rates identified as the main concern among reserve managers.",
    "Consequences noted:",
    "Actions taken and tradeoffs:",
    "Core dilemma: what risks to take, how to take them, and whether new solutions will deliver desired results.",
    "Communication practice: asset managers have started to communicate their choices more, but many central banks still find it hard to convey the choices they make and why.",
    "Specific observation from survey: the majority of central banks surveyed do not publish their reserve management guidelines.",
    "Purpose of clear communication:",
    "Observed strategy: most reserve managers emphasize the first two pillars—capital preservation and a high level of liquidity—at the expense of return.",
    "Recommendation for stakeholders: support a strategy prioritizing capital preservation and liquidity, especially in times of increased financial volatility and low interest rates.",
    "[https://www.imf.org/wp-content/uploads/2017/03/imf-reserve-mgrs-chart1.jpg](https://www.imf.org/wp-content/uploads/2017/03/imf-reserve-mgrs-chart1.jpg)",
    "[https://www.imf.org/wp-content/uploads/2017/03/imf-reserve-mgrs-chart2.jpg](https://www.imf.org/wp-content/uploads/2017/03/imf-reserve-mgrs-chart2.jpg)"
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