## Two Things That Keep Central Banks' Reserve Managers Awake at Night

_IMF Blog, March 29, 2017_

## Source details

**Canonical URL:** [Two Things That Keep Central Banks' Reserve Managers Awake at Night](https://www.imf.org/en/blogs/articles/2017/03/29/two-things-that-keep-central-banks-reserve-managers-awake-at-night)

## Other formats

- [Markdown version](/en/blogs/articles/2017/03/29/two-things-that-keep-central-banks-reserve-managers-awake-at-night/index.md)
- [Structured JSON version](/en/blogs/articles/2017/03/29/two-things-that-keep-central-banks-reserve-managers-awake-at-night/index.json)
- [Bundle manifest](/en/blogs/articles/2017/03/29/two-things-that-keep-central-banks-reserve-managers-awake-at-night/bundle-manifest.json)

## Bibliographic details
- Authors: Veronica Bacalu, Vincent Fleuriet, Asad Qureshi
- Published: March 29, 2017

---

### Overview and authorship
- 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.

### Role and investment objective 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:
  - preserving the capital of the investments,
  - ensuring the liquidity of assets—how tradable they are,
  - earning a return.

### Survey of reserve managers
- Sample: 63 central banks from advanced, emerging, and low-income countries.
- Purpose: understand reasons behind reserve managers' worries and collect their top concerns.

### Finding 1 — Low interest rates
- Low interest rates identified as the main concern among reserve managers.
- Consequences noted:
  - Returns on international reserves are low, and in some cases even turned negative.
  - Reserve managers struggle to find sources of income without taking unacceptable risks.
  - 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.
  - Post-crisis environment: that tradeoff is no longer straightforward.
- Actions taken and tradeoffs:
  - Some managers invested in higher-yielding currencies to increase returns, but this introduced additional foreign exchange volatility and currency risk.
  - Investing in emerging market or corporate bonds may increase short-term income but may not provide a steady stream of investment income.
- Core dilemma: what risks to take, how to take them, and whether new solutions will deliver desired results.

### Finding 2 — Communicating choices
- 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:
  - Helps financial markets and the public understand reserve management choices.
  - Clarifies that managing international reserves is not about making a profit but about preserving the external value of the domestic currency and prioritizing stability.

### Practical approach and policy implications
- 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.

*Source: IMF blog post "Two Things That Keep Central Banks' Reserve Managers Awake at Night," Veronica Bacalu, Vincent Fleuriet, Asad Qureshi, March 29, 2017.*

---


## References

- [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)

_Source: https://www.imf.org/en/blogs/articles/2017/03/29/two-things-that-keep-central-banks-reserve-managers-awake-at-night_