{
  "title": "IMF/World Bank International Reserves: Policy Issues Forum -- Opening Remarks by IMF First Deputy Managing Director Stanley Fischer",
  "publication": "IMF News, April 28, 2001",
  "sourceUrl": "https://www.imf.org/en/news/articles/2015/09/28/04/53/sp042801",
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  "summary": "Given at the IMF/World Bank International Reserves: Policy Issues Forum, Washington D.C.",
  "publishDate": "2001-04-28",
  "sections": [
    {
      "heading": "Introduction",
      "content": "- Event: IMF/World Bank International Reserves: Policy Issues Forum, Washington D.C., April 28, 2001.\n- Speaker: Stanley Fischer, First Deputy Managing Director, International Monetary Fund.\n- Participants: representatives from more than 50 countries.\n- Conference focus (three topics):\n  - How to judge the adequacy of a country's reserves.\n  - How to structure reserves: currency denomination, type, and duration of instruments.\n  - Reserve management guidelines: underlying principles and promotion."
    },
    {
      "heading": "Crisis Prevention",
      "content": "- Reserves are a key determinant of a country's ability to avoid economic and financial crisis, especially for emerging markets open to volatile international capital flows.\n- Fund's strengthened contribution:\n  - Surveillance: greater focus on policy areas that leave countries vulnerable (reserve management, macroeconomic policies, exchange rate regimes, financial sector soundness, debt management).\n  - Transparency and international standards: publication of many IMF staff reports and proliferation of international standards and codes of conduct.\n  - Early warning and information initiatives:\n    - Strengthening methodology for early warning systems.\n    - Creating an International Capital Markets Department.\n    - Regular meetings with private sector through the Capital Markets Consultative Group.\n  - Lending instruments:\n    - Introduction of Contingent Credit Lines (CCL) to give countries financial incentives to adopt crisis-resistant policies; expectation that \"we will see the CCL coming into active use within a few months.\""
    },
    {
      "heading": "Adequacy of Reserves",
      "content": "- Traditional rule of thumb:\n  - Reserves sufficient to pay for three or four months of imports; median reserve levels during the last 50 years were mostly in that range.\n- Shift in thinking due to growth of capital flows in the 1990s:\n  - Private capital access is uncertain and inflows subject to rapid reversals.\n  - Empirical evidence: ratio of short-term external debt to reserves is the single indicator best correlated with incidence of foreign exchange crises.\n  - Holding reserves in excess of short-term debt reduces crisis depth in emerging markets during international contagion.\n- IMF staff and Executive Board view:\n  - Holding reserves equal to short-term debt is an appropriate starting point for countries with significant but uncertain access to capital markets.\n  - Countries may need reserves well in excess of this level depending on:\n    - macro-economic fundamentals;\n    - exchange rate regime;\n    - quality of private risk management and financial sector supervision;\n    - size and currency composition of external debt.\n- Role of stress tests:\n  - Evaluate potential balance of payments variations across scenarios.\n  - Particularly suitable for country-specific assessment.\n  - Holding reserves equal to short-term debt as a starting point has intuitive appeal: allows a country to honor all debt obligations for a year if current account is in balance, no capital flight, no new capital inflows, and creditors refuse to roll over maturing debts.\n- Observed changes in reserve levels:\n  - Import coverage increased from 6 months in 1997 to 7 months in 2000 for emerging market economies.\n  - Reserve holdings rose from 125 percent of short term debt in mid-1997 to 200 per cent in late-2000.\n- Applicability:\n  - Short-term debt yardstick is more appropriate for emerging market countries with access to private capital.\n  - For industrialized countries or those without significant access to private capital, traditional guides (past volatility of reserves and the current account) remain useful."
    },
    {
      "heading": "Composition of Reserves",
      "content": "- Implications of the new adequacy approach:\n  - Currency composition should broadly reflect the composition of potential capital outflows rather than trade flows.\n  - Avoid instruments that suffer disproportionate credit or liquidity risks during international contagion or turmoil.\n  - If reserves are judged more than adequate, investment in instruments with somewhat longer duration makes sense.\n- Further details to be discussed in conference presentations by Mr. Grava and Ms. Yip."
    },
    {
      "heading": "Reserve Management Guidelines",
      "content": "- Identified deficiencies during recent crises:\n  - Investment of reserves with foreign branches of domestic banks.\n  - Pledging of reserves as collateral rendering them illiquid and unusable.\n  - Incorrect measurement of net foreign currency positions exposing entities to large unintended exchange rate risks.\n  - Speculative positions in foreign currencies and investments in derivative instruments resulting in large losses.\n- Consequences:\n  - Restricted ability to respond effectively to financial crises and possible accentuation of crisis severity.\n  - Significant financial and reputational costs; several countries incurred large losses with direct or indirect fiscal consequences.\n- Fund and Bank response:\n  - Developing voluntary Reserve Management Guidelines to help governments strengthen policy frameworks for reserve management.\n  - Objectives of the Guidelines:\n    - Help authorities articulate appropriate objectives and principles.\n    - Build adequate institutional and operational foundations for good reserves management practices.\n  - Design principles:\n    - Intended for a broad range of countries at different stages of development and with various institutional structures.\n    - No unique set of practices or institutional arrangements prescribed.\n  - Development process and outreach:\n    - Encouragement and input from practitioners; an outreach meeting in Washington included reserve managers from about 30 countries.\n    - Five regional outreach meetings planned to follow up in spring and summer; guidelines expected to be finalized by the time of the annual meetings.\n  - Linkages:\n    - Guidelines will complement the Debt Management Guidelines elaborated by the Fund and endorsed by the Board.\n    - Both provide elements of a comprehensive framework for asset and liability management.\n    - Coordination among relevant agencies may be required to ensure consistent and supporting policies.\n  - Uses:\n    - Framework for Fund and Bank technical assistance.\n    - Focal point for discussion between national authorities and the Fund on necessary improvements.\n    - Stefan Ingves, Director of the Monetary and Exchange Affairs Department of the IMF, will address guidelines later in the conference."
    },
    {
      "heading": "Better Data on Reserves",
      "content": "- Importance of accurate and timely reserves data for market participants and the official sector.\n- IMF reserve data reporting template:\n  - Designed with help from the G-10 and central banks to inspire confidence and reduce uncertainty and volatility.\n  - Currently reserve data for 45 countries are posted in this format and accessible through the IMF's website.\n  - Countries are expected to use the template when providing data to the Fund for surveillance; they may provide data more frequently than the required once monthly if they wish."
    },
    {
      "heading": "Conclusion",
      "content": "- Substantial and well-managed reserves are crucial to crisis prevention but are not costless.\n- The CCL offers a cheaper way of gaining access to foreign currency than holding reserves.\n- Policymakers face trade-offs in reserves policy; further perspectives expected from Mr Fraga at lunchtime.\n- Acknowledgements: Ken Lay, Jennifer Johnson Calari, Nonna Ponferrada (from the World Bank); Christian Mulder, Ydahlia Metzgen, Arne Petersen, Peter Dattels (from the Fund); thanks to speakers, discussants, and attendees.\n\nOpening Remarks by Stanley Fischer, First Deputy Managing Director, International Monetary Fund, Washington DC, April 28, 2001.\n\n---\n\n\n References\n\n- Hungary and the IMF\n- IMF Policy Advice -- A Factsheet\n- Speeches\n- PRESS CENTER\n- https://www.imf.org/external/np/omd/bios/sf.htm\n- IMF Surveillance\n- How Does the IMF Lend?\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2015/09/28/04/53/sp042801"
    }
  ],
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    "Published: April 28, 2001",
    "Event: IMF/World Bank International Reserves: Policy Issues Forum, Washington D.C., April 28, 2001.",
    "Speaker: Stanley Fischer, First Deputy Managing Director, International Monetary Fund.",
    "Participants: representatives from more than 50 countries.",
    "Conference focus (three topics):",
    "Reserves are a key determinant of a country's ability to avoid economic and financial crisis, especially for emerging markets open to volatile international capital flows.",
    "Fund's strengthened contribution:",
    "Traditional rule of thumb:",
    "Shift in thinking due to growth of capital flows in the 1990s:",
    "IMF staff and Executive Board view:",
    "Role of stress tests:",
    "Observed changes in reserve levels:",
    "Applicability:",
    "Implications of the new adequacy approach:",
    "Further details to be discussed in conference presentations by Mr. Grava and Ms. Yip.",
    "Identified deficiencies during recent crises:",
    "Consequences:",
    "Fund and Bank response:",
    "Importance of accurate and timely reserves data for market participants and the official sector.",
    "IMF reserve data reporting template:",
    "Substantial and well-managed reserves are crucial to crisis prevention but are not costless.",
    "The CCL offers a cheaper way of gaining access to foreign currency than holding reserves.",
    "Policymakers face trade-offs in reserves policy; further perspectives expected from Mr Fraga at lunchtime.",
    "Acknowledgements: Ken Lay, Jennifer Johnson Calari, Nonna Ponferrada (from the World Bank); Christian Mulder, Ydahlia Metzgen, Arne Petersen, Peter Dattels (from the Fund); thanks to speakers, discussants, and attendees.",
    "[Hungary and the IMF](http://www.imf.org/external/country/HUN/index.htm)",
    "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)",
    "[Speeches](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[https://www.imf.org/external/np/omd/bios/sf.htm](https://www.imf.org/external/np/omd/bios/sf.htm)",
    "[IMF Surveillance](https://www.imf.org/external/np/exr/facts/surv.htm)",
    "[How Does the IMF Lend?](https://www.imf.org/external/np/exr/facts/howlend.htm)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
  ],
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